In-Kind Donation Accounting: Valuation, Recording, and Reporting

In-kind donations — contributed goods, services, and other non-cash assets — represent a meaningful portion of revenue for many nonprofits. They are also the most commonly misrecorded donation type in nonprofit accounting. Gifts are valued incorrectly, recorded inconsistently, or omitted from the financial statements entirely.

The stakes are real. Misrecorded in-kind gifts distort your financial picture, create audit findings, and put donor deductions at risk. A 2020 FASB accounting update (ASU 2020-07) added new disclosure requirements that many organizations are still catching up on.

What Counts as an In-Kind Donation?

In-kind donations fall into two broad categories under ASC 958:

Contributed nonfinancial assets (goods): Physical items donated to the organization — equipment, supplies, food, clothing, real property, vehicles, securities, and works of art.

Contributed services: Services donated to the organization. These are subject to stricter recording criteria than goods.

Recording Contributed Goods

Contributed goods are recorded at fair market value at the date of contribution. Fair market value is the price at which the item would change hands between a willing buyer and a willing seller, neither under compulsion to act.

Practical approaches to valuation:

• New merchandise: Retail price is generally acceptable as fair market value
• Used goods: Thrift store price for similar items in similar condition
• Equipment: Independent appraisal, recent comparable sales, or dealer quotes
• Gifts over $5,000: A qualified appraisal is required for the donor's tax deduction (Form 8283, Section B), though the organization may use other reasonable methods for recording

The journal entry records the asset or expense at fair market value, with a corresponding credit to contribution revenue. The revenue flows through the Statement of Activities as a contribution.

Recording Contributed Services

The rules for contributed services are more restrictive. Under ASC 958, you record contributed services only if they meet one of two criteria:

1. They create or enhance a nonfinancial asset. A volunteer who renovates your office building creates value that enhances the asset. The fair value of those construction services should be recorded.

2. They require specialized skills, are provided by someone who possesses those skills, and would typically need to be purchased if not donated. Legal services, accounting work, medical services, financial planning, and technical expertise qualify. A volunteer stuffing envelopes or answering phones does not.

This distinction matters. Many organizations record all volunteer time as donated services, which is incorrect. Only specialized skilled services that you would otherwise purchase meet the recording threshold.

For recordable services, value them at the rate the provider would charge commercially for similar services. An attorney who bills $400 per hour and provides five hours of legal services generates $2,000 of contributed service revenue.

ASU 2020-07: The New Disclosure Requirements

The Financial Accounting Standards Board issued ASU 2020-07, effective for fiscal years beginning after June 15, 2021. It changed how contributed nonfinancial assets must be presented and disclosed.

Key changes:

Separate presentation in the Statement of Activities. Contributed nonfinancial assets must be presented as a separate line item from cash contributions. Previously, many organizations commingled in-kind gifts with other revenue. The update requires them to be visible and distinguishable.

Qualitative disclosures in the notes. For each major category of contributed nonfinancial assets, the notes must disclose:

• The disaggregated amount by category
• Whether donor restrictions exist and how they were used
• A description of the valuation technique and principal market used
• Whether any contributed nonfinancial assets were sold immediately upon receipt

These disclosures require more detailed tracking at the point of gift entry than most organizations previously maintained.

The Most Common Valuation Pitfalls

Using the donor's claimed value. The organization must independently determine fair market value. A donor who claims their donated computer is worth $2,000 cannot substitute for your own assessment — especially if the computer is a five-year-old model worth considerably less.

Recording services that do not qualify. Recording all volunteer hours as contributed services inflates revenue and can mislead financial statement readers. Only record services that meet the ASC 958 criteria.

Omitting significant in-kind gifts. Organizations that receive large gifts of food, supplies, or equipment and fail to record them understate both revenue and expense, distorting the financial picture and potentially creating Form 990 issues.

Not documenting the valuation method. Your auditor will ask how you determined fair market value. "The donor said it was worth X" is not an answer. Document the method — comparable sales, published price lists, appraisals — in your records at the time of recording.

Donor Documentation Requirements

The donor's tax deduction for non-cash gifts has its own documentation requirements, which are separate from the organization's recording obligations:

• Gifts $250–$500: Written acknowledgment from the organization (description of the property, but not its value)
• Gifts $500–$5,000: Donor must file Form 8283 with their tax return; organization need not sign
• Gifts over $5,000: Donor must obtain a qualified appraisal and have the organization sign Form 8283, Section B
• Gifts over $500,000: Qualified appraisal must be attached to the return

The organization's signature on Form 8283 confirms that it received the property described — it does not validate the donor's claimed value.

Tracking In-Kind Gifts in Your Accounting System

Under ASU 2020-07, in-kind gifts need to be tracked by category (food, equipment, professional services, real property, etc.) with valuation methodology documented for each. This requires your accounting system to support gift type classification at the transaction level.

In sherbertOSOS, in-kind contributions are entered in the general ledger with a gift type classification — physical goods, contributed services, or contributed securities — separate from cash contributions. The valuation, donor attribution, and restriction status are recorded at entry. The Statement of Activities generates the separate in-kind line item required by ASU 2020-07, and the notes disclosure data pulls directly from the categorized gift records rather than requiring a manual reconstruction at year-end.

Frequently Asked Questions

How do you determine fair market value for in-kind donations?

For goods, use the price a willing buyer would pay a willing seller in an arm's-length transaction. For new merchandise, retail price is generally appropriate. For used goods, use comparable thrift store or resale prices. For items over $5,000, obtain an independent appraisal. For services, use the commercial rate the provider would normally charge.

Do I record donated services?

Only if they create or enhance a nonfinancial asset, or if they require specialized skills (legal, accounting, medical, construction) that the organization would otherwise need to purchase. General volunteer labor — filing, sorting, event staffing — does not meet the recording criteria under ASC 958.

What changed with ASU 2020-07?

Nonprofits must now present contributed nonfinancial assets as a separate line item in the Statement of Activities (not combined with cash contributions) and provide expanded qualitative disclosures in the notes, including valuation techniques, principal market used, and whether any donated assets were sold immediately upon receipt.

What if our auditor finds we've been recording non-qualifying services?

You will likely need to restate the affected financial statements. Going forward, apply the ASC 958 criteria correctly and retrain staff on what qualifies. Removing previously recorded services from the financials and the Form 990 may be required.

Do securities donations follow the same rules?

Yes, but with some additional considerations. Donated publicly traded securities are recorded at fair market value on the date of donation (typically the average of the high and low trading price that day). Most organizations sell donated securities immediately to avoid market risk, which should be disclosed per ASU 2020-07.

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