In-Kind Donations: Recognition and Recording for Nonprofit Organizations

In-kind donations, or gifts-in-kind, are a critical resource for many not-for-profit organizations. These donations are noncash charitable contributions of goods or services that help support the organization’s mission. Without in-kind donations, organizations would need to purchase these items themselves to support their programs. Proper accounting and compliance with the Financial Accounting Standards Board (FASB) regulations are critical for accurate financial reporting. 

Defining In-Kind Donations 

ASC 958-605 provides guidance on in-kind donations and nonfinancial assets. These nonfinancial assets can include land, buildings, equipment, materials, and supplies, and often may be items such as food, clothing, and household goods. Additionally, the use of facilities, utilities, or intangible assets can be included in this definition. Services, such as donated professional services, are also a nonfinancial asset if they meet certain criteria. 

Effective in 2021, AUS 2020-07 provided an update to the presentation and disclosure requirements for contributed nonfinancial assets. The key provisions of this update were as follows: 

• Require a separate presentation on the statement of activities, distinct from financial contributions such as cash. 
• Require additional disclosure, including the category of each contributed nonfinancial asset, how organizations use these items in their programs, any donor restrictions, and the method used to determine the asset’s value. 

Recording In-Kind Donations 

Now that we have identified a contributed nonfinancial asset, how do we record it? Contributed in-kind donations of goods (food, equipment, or supplies) are recorded at fair market value as of the date the organization receives them. Contributed in-kind donations that are services are first evaluated to determine if they a) create or enhance a nonfinancial asset, or b) require specialized skills and would otherwise be purchased. If the services meet either criterion, they are recognized at fair market value based on market prices, quotes, or donor-provided information. 

New or existing nonprofit organizations may inadvertently have errors in recording in-kind donations. These errors occur when organizations: 

• Record volunteer time that does not meet the criteria for in-kind services. 
• Do not have policies in place to: 
  • Track all incoming donated goods. 
  • Assign a fair value that is consistent and reasonable. 

• Present in-kind contributions together in the same line item as cash contributions within the financial statements. 
• Do not disclose donor restrictions. 

Reporting and Compliance Best Practices 

As a best practice, organizations should start with a gift acceptance policy to make sure they meet accurate reporting and compliance with the FASB’s standards. Upon receipt of a contributed nonfinancial asset, nonprofit organizations should document the fair value of the item, along with any donor restrictions on the purpose or use of the item. To keep in-kind donations separate from other types of contributions, organizations should use separate revenue accounts; they can then separate these accounts into in-kind goods and in-kind services. Organizations should also maintain sufficient detail throughout the year to prepare the required disclosures showing the categories of goods and services, the programs that used them, and how they determined the fair value of the contributions. 

Establishing and implementing strong procedures for tracking in-kind donations throughout the year enables accurate, complete year-end reporting in the financial statements and on tax returns for nonprofit organizations. Users of both the financial statements and Form 990 will clearly see the importance and use of these vital resources for the organization. 

Does your organization need help recognizing and recording in-kind donations? The EisnerAmper Not-for-Profit Organizations Team has decades of experience. Contact us today to find out how we can support you.