Accounting for In-Kind Donations: A Practical Guide for Nonprofits
In-kind donations play an important role in nonprofit accounting and can significantly strengthen a nonprofit’s program impact along with financial position.
Many organizations rely on donated goods, professional services, and volunteer support each year. According to the National Philanthropic Trust, over 75 million Americans volunteer and provide in-kind donations annually, contributing billions in economic value. Accurate tracking and reporting of these non-cash contributions helps nonprofits present a complete picture of community support while meeting accounting and audit expectations.
Understanding In-kind Donations in Nonprofit Accounting
Nonprofits receive many types of non-cash contributions. Accounting rules provided by the Financial Accounting Standards Board (FASB) outline how these gifts should be valued and recorded.
For organizations looking to strengthen reporting, Mission Edge provides support through comprehensive nonprofit accounting services.
What Counts as an In-Kind Donation?
Common categories include:
Donated supplies such as food, office items, or program materials
Donated equipment including computers, furniture, or tools
Volunteer time that uses specialized skills and would normally be paid for
Free or discounted use of space or facilities
According to FASB guidance, donated services must meet two criteria in order to be recorded as revenue: the service creates or enhances a nonfinancial asset, or the service requires specialized professional skills.
Valuing In-kind Donations
Valuation is a key part of nonprofit accounting for in-kind donations. The goal is to capture the fair market value (FMV) at the time the donation is received.
Fair market value is typically based on:
Comparable retail prices
Published market rates for professional services
Independent appraisals for high value items
Documented quotes or price lists from reputable sources
According to the IRS, FMV reflects the price a willing buyer and seller would agree on when neither is pressured to make a transaction.
Direct Answers to Common Questions
Do nonprofits assign value to volunteer hours?
Only if the volunteer uses specialized skills such as accounting, medical care, or legal support.
Can nonprofits rely on donors to assign value?
Nonprofits should verify FMV using reasonable methods because the organization is responsible for accurate reporting in financial statements.
Recording In-kind Donations in Nonprofit Accounting
Once valued, the donation is recorded as both revenue and an expense or asset. This dual entry presents a clear view of the resource received and how it supports mission related activities.
Documentation Needed for Donors
Clear documentation supports transparency and audit readiness. Nonprofits should maintain:
A detailed description of the donated item or service
Date received
FMV and method used to determine value
Donor acknowledgment letters
Any restrictions on how the donation must be used
Copies of appraisals when applicable
According to the IRS, donors are responsible for valuing their own contributions when claiming tax deductions, while nonprofits must provide written acknowledgment for gifts valued at $250 or more.
Strengthening Internal Processes for In-kind Donations
Well-designed procedures help staff record non cash contributions consistently and accurately.
Recommended Best Practices:
Create a written in-kind donations policy
Train staff on valuation requirements
Maintain templates for acknowledgment letters
Use checklists for recording and documentation
Periodically review recorded values for clarity and consistency
When Nonprofits Should Seek Accounting Support
Organizations often benefit from outside guidance when:
In-kind donations increase significantly
Donated services involve complex or technical skill sets
Audit requirements require strengthened documentation
Staff capacity is limited or turnover has created knowledge gaps
For examples of how nonprofits modernize their processes, see the Mission Edge blog post on the importance of accurate accounting.
In-kind donations contribute meaningful value to nonprofit programs and operations.
Accurate valuation and documentation protect organizations, strengthen financial reporting, and reflect the true generosity of the community. By understanding the rules that guide nonprofit accounting for non-cash contributions, teams can confidently record and communicate the support they receive.
If you want to improve your organization’s approach to in-kind donations or strengthen overall nonprofit accounting practices, talk to our nonprofit experts to learn how we can support your team.
