Your nonprofit’s mission requires funding, which is why your organization puts a lot of effort into its fundraising strategies. Throughout your donor acquisition and stewardship efforts, you likely solicit various types of support for your cause and earn more than just monetary donations.

Diversified sources of revenue offer financial stability and flexibility, but their various nuances can become complicated to properly record. Let’s review the various types of donations you might accept, including why they should be categorized and how to organize them. 

Why categorize donations?

Diversified revenue streams are necessary for financial fortitude, but categorizing them properly in your nonprofit’s books is equally crucial for effective financial management. Recording revenue is a key component of nonprofit bookkeeping, and categorizing your donations ensures that you keep your books in order.

According to Foundation Group, effective bookkeeping comes with the following benefits for your organization:

With effective bookkeeping data management, your nonprofit can make informed budgeting decisions based on key financial insights. This demonstrates transparency to your stakeholders, especially the donors who give to your organization. Additionally, organized donation data simplifies financial reporting so that your nonprofit can meet compliance standards, such as tax reporting obligations.

3 donation categories

Before you develop a plan for organizing nonprofit gifts, solidify your understanding of the three main donation categories your organization may encounter. 

Cash donations

Don't let the name fool you—cash donations are not limited to actual cash. These monetary contributions are made in various forms, including cash, credit card, check, and even matched donations. This is the most common type of charitable giving, covering a wide range of individual donations.

For example, if a donor navigates to your donation page and completes the form to contribute $5, this would be considered a cash donation. However, cash donations also refer to more complex contributions, such as startup costs paid by a board member that aren’t reimbursed. 

The key differentiator between cash donations and other types of nonprofit gifts is that cash donations involve a direct transfer of funds from the donor to the nonprofit.

In-kind donations

Noncash gifts, or in-kind donations, refer to nonmonetary contributions of tangible or intangible assets. These donations are often broken down into goods or services, which may be given directly to beneficiaries or used by your nonprofit to further its operations, programs, and fundraising initiatives. 

In-kind donation recording depends on the purpose of the gift. Materials used by your nonprofit may be recorded as revenue according to the fair market value (FMV) of the donation. 

For example, an animal shelter should record a donated bag of pet food as revenue totaling the cost of the food if the nonprofit had purchased it from the supplier. In contrast, items donated to the nonprofit for an upcoming auction would be recorded as the amount paid by the donor if the FMV exceeds the winning bid.

Securities

Securities, or stock donations, are less common contributions, especially for smaller organizations. These nonprofit gifts include stocks, bonds, and mutual funds transferred directly from a donor to a nonprofit. 

For bookkeeping purposes, these donations should be recorded as revenue according to their FMV at the time of the donation. FMV for securities represents their open market value. However, even though you record stock donations based on their cash values internally, you shouldn’t list any cash values on the donation receipts you send to donors. According to Infinite Giving’s stock donation guide, tax receipts should only include the name of the stock and the number of shares donated.

Upon receiving securities, your nonprofit may sell them and convert them into cash. It’s important to note that any gains or losses earned as a result would be treated as though your nonprofit purchased the security itself and the proceeds aren’t considered a donation.

How to organize nonprofit gifts

As your nonprofit accumulates matched gifts, tangible goods, stock donations, and a variety of other contributions, you’ll need to effectively organize them for compliance, budgeting, and usage purposes. Follow these steps to organize nonprofit gifts.

Standardize donation recording

Your first step in organizing gifts is to record donation details as soon as you receive them. Determining where and how you’ll store this data ensures you record everything accurately and consistently.

Standardize donation recording by defining:

• Who records donations? Identify which team members should be responsible for recording donation data in your bookkeeping system.

• What recording rules should be followed? Provide specific standards for how data should be formatted. For example, note whether dates should be formatted as DD/MM/YYYY or fully written out.

• Where will data be stored? Depending on your nonprofit’s bookkeeping system, you may need to clarify that donations should be recorded in several locations.

Standardizing data entry processes can help maintain a clean and error-free database. This way, your donation information looks the same across the board.

Use coding or tagging systems

As team members input donation data over time, you can organize revenue in your data management system using coding or tagging systems. Assign tags to each donation that specify the type of gift. This can help your nonprofit quickly understand the composition of its revenue streams.

Include coding or tagging instructions in team training so that this process is standardized, too. Consistent tagging will enhance your ongoing data management efforts and ensure your donation data remains properly organized. 

Consult a professional bookkeeper

To organize nonprofit gifts most accurately and save valuable team time that can be spent actually raising donations, consult a professional bookkeeper. An expert in nonprofit bookkeeping can help you develop an organized system for categorizing donations and ensure your nonprofit maintains compliance with financial reporting regulations. Their services commonly include:

• Recording transactions
• Reconciling bank statements
• Producing financial statements

When consulting a professional bookkeeper, be sure to find an expert who specializes in nonprofit bookkeeping and has ample experience working with 501(c)(3) organizations. Donation categorization is unique to your nonprofit’s books, so the expert you trust to handle it should be familiar with the process and requirements.

Your nonprofit’s various revenue streams can be difficult to track, but an organized approach is necessary for maintaining your budget, compliance, and financial transparency. Ultimately, this spurs even more donor support because transparency proves that your organization truly uses donations to make an impact on its community.