Recording in-kind donations on your books

This guide is for the treasurer or bookkeeper who has just been handed a donated laptop, a year of free office space, or a pro bono website, and wonders whether and how it goes in the books. In-kind donations are gifts of anything other than money. Recording them well makes your financial statements honest about what it really costs to run your programs. After reading, you'll know what the accounting rules ask for, how to keep a simple log, what your financial statements must show, and why your Form 990 may treat the same gift differently.

This page is about your books. What the donor can deduct, and the IRS forms a donor or charity may need, are in our guide to noncash gifts.

What counts as an in-kind gift

The accounting standard for nonprofits calls these contributed nonfinancial assets. In ASU 2020-07, the Financial Accounting Standards Board (FASB), which writes US generally accepted accounting principles (GAAP), says the term includes:

• fixed assets, such as land, buildings and equipment
• the use of fixed assets or utilities, such as free rent
• materials and supplies, such as food, clothing or medical supplies
• intangible assets, such as software licenses or a donated trademark
• services
• unconditional promises to give any of these

Cash, checks, card gifts and stock are financial assets, and they're recorded as ordinary contributions, not in-kind.

Goods and space: record at fair value

When donated goods and free use of property are recorded, GAAP measures them at fair value when you receive them. Fair value means roughly what the item would sell for in its main ("principal") market. FASB's Topic 820 sets out how to measure it, and ASU 2020-07 asks you to describe the valuation techniques and inputs you used.

Practical ways small charities estimate fair value:

• Goods: the price of the same or a similar item, in similar condition, in the market where you'd normally sell or buy it. A used laptop is valued as a used laptop.
• Space: what comparable space nearby rents for.
• Large or unusual items (a building, a vehicle, art): get an outside valuation, and ask your accountant.

Write down your method and the evidence, such as a screenshot of comparable prices or a landlord's letter, the same day. If you later need a review or audit (see audits and reviews), that note is what the accountant will ask for.

Donated services: some are recorded, all are described

Services are where most confusion lies. GAAP records some donated services as revenue and not others. The test is in paragraph 958-605-25-16 of FASB's Subtopic 958-605, as quoted in PwC's not-for-profit accounting guide and summarized in The CPA Journal. Contributed services are recognized only if they meet either of two criteria:

• They create or enhance nonfinancial assets, for example volunteers who help build or repair a building you own.
• They require specialized skills, are provided by people who have those skills, and would typically need to be purchased if not donated. The standard's examples of such people include accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers and teachers.

General volunteer help, such as serving meals or staffing a front desk, usually meets neither test and isn't recorded as revenue. Your accountant applies the test to your own case.

Whether or not you record them, ASU 2020-07 keeps a disclosure rule for services. An organization that receives contributed services "shall describe the programs or activities for which those services were used," including the nature and extent of services received and the amount recorded as revenue. The standard says the nature and extent can be described with nonmonetary information, "such as the number and trends of donated hours," and it encourages disclosing the fair value of services received but not recorded, where that's practical. In its words, disclosure "is required regardless of whether the services received are recognized."

So keep a volunteer hours log even if none of it goes in the books.

What ASU 2020-07 asks your statements to show

ASU 2020-07 applies to nonprofits that prepare GAAP financial statements, and it took effect for annual periods beginning after June 15, 2021, so it now applies to every year. It didn't change whether or how much you record. It changed how you show it:

1. A separate line. Contributed nonfinancial assets go on their own line in the statement of activities, apart from contributions of cash and other financial assets.
2. Notes by category. The notes break the total down by type, such as food, equipment, rent or professional services.

For each category, the notes say:

• whether the items were used in programs (and which programs) or sold (FASB calls it "monetized")
• your policy, if any, on selling donated items rather than using them
• any donor restrictions on them
• how you valued them, the "valuation techniques and inputs"
• the market used for the value, if a donor restriction bars you from selling or using the items in that market

The standard says these disclosures aren't prescriptive about format. A short table plus a paragraph per category is enough for most small charities.

Form 990 treats services differently

Your Form 990 and your GAAP statements won't always agree on in-kind gifts, and that's expected.

• Goods count. Noncash contributions are included in Part VIII, line 1, and line 1g shows how much of that total was noncash.
• Services and free use of property don't count as contributions on the 990. The Form 990 instructions say reporting under ASC 958 (GAAP) is generally acceptable for line 1, "but the value of donated services or use of materials, equipment, or facilities may not be reported." You may mention donated services or space in your program descriptions in Part III, but not in the revenue, expense or grant figures there.
• Schedule M. Form 990 Part IV, line 29 asks whether you received more than $25,000 in noncash contributions; if so, you complete Schedule M, which lists them by type. Art, historical treasures and conservation contributions trigger it at any amount (line 30).

Here's a hypothetical case: a charity whose audited statements record $40,000 of donated legal services leaves that $40,000 out of its Form 990 revenue and expenses. Tell whoever prepares your 990 which in-kind amounts are services or free use of property.

A simple in-kind log

Keep one row per gift:

Add a separate sheet for volunteer and pro bono hours: date, person, program, hours, and whether the work needed professional skills.

In-kind checklist

• We log every in-kind gift on the day it arrives
• Each entry records how we arrived at fair value, with evidence
• Donated rent and pro bono services are logged even if not recorded as revenue
• Our accountant has confirmed which donated services we record
• In-kind gifts have their own line in our statement of activities
• Our notes break in-kind gifts down by category, use, restriction and valuation method
• We know whether we'll pass $25,000 of noncash gifts and need Schedule M
• Donor receipts describe gifts without valuing them