How to Account for Donated Assets

Donated assets are non-monetary contributions that a company or organization receives from individuals or other entities. Examples of donated assets can include items such as land, buildings, equipment, and supplies. Accounting for donated assets requires careful consideration of several factors, including the type of asset, its value, and the nature of the donation.

Here are some general guidelines on how to account for donated assets:

1. Identify the type of asset: The first step in accounting for a donated asset is to identify the type of asset that was donated. This can include land, buildings, equipment, or other types of property.

2. Determine the fair market value: The next step is to determine the fair market value of the donated asset. This is the price that the asset would sell for in an arm's length transaction between a willing buyer and a willing seller. If the donor provides an appraisal of the asset's fair market value, it can be used to record the donation. Otherwise, the organization should obtain an independent appraisal.

3. Record the donation: The donated asset should be recorded as a contribution in the organization's accounting system. The value of the donation should be recorded at its fair market value. The entry should debit the asset account and credit the contribution revenue account.

4. Classify the donation: The donated asset should be classified according to its nature. For example, if the donation is a building, it should be classified as a fixed asset on the organization's balance sheet.

5. Recognize any restrictions: If the donor places any restrictions on the use of the donated asset, the organization must recognize those restrictions in its accounting records. For example, if the donor specifies that the donated land can only be used for a particular purpose, the organization should record the restriction as a separate account.

6. Monitor the asset: Once the donated asset has been recorded in the accounting system, the organization should monitor it regularly to ensure that it is being used appropriately. This includes performing regular maintenance on the asset and ensuring that any restrictions are being followed.

In summary, accounting for donated assets requires careful consideration of several factors, including the type of asset, its value, and any restrictions placed on its use. By following these guidelines, organizations can ensure that they accurately record and report donated assets in their financial statements.