How to Record In-Kind Donations: Items and Services

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When supporters donate items or services to a nonprofit, they are making in-kind donations. Even though no cash is changing hands, these should be reported to the accountant to record. You’re the accountant – do you know what to do?

Items
Donated items should be recorded as In-Kind Gift Income and In-Kind Gift Expense, in most cases, or as Assets under certain circumstances. Consider the following scenarios:

  • A supporter donated $350 worth of plants to landscape the office in spring. Reord an In-Kind Gift of $350 and an In-Kind Expense of the same amount.
  • Your organization has purchased a building that needs renovations. Supporters donated sheet rock, flooring, and paint valued at $10,000. The donation will create an asset with a life of more than a year, and the value exceeds your capitalization threshold. Record In-Kind Gift Income and a debit to Building Improvements.
  • You are holding an auction. You need to know the fair market value (FMV) of donated items. For items purchased especially for the event, a copy of the receipt is best. If no reciept is available you, or the auction coordinators, may need to estimate value at the time of donation. You will record a credit to In-Kind Gift Income and a debit to Inventory for Sale. Once the items are sold at auction, you will adjust the value you record to agree to the sales price at the auction by crediting In-Kind Gift Income and debiting Inventory for Sale. In other words, FMV is established by the price paid at the auction. That may be significantly lower or higher than your estimate, or even the purchase price paid at the store. When you record the incoming cash, you debit Cash and credit Inventory for Sale.

Services
Donated services can’t always be recorded. They must be provided by people with expertise in a field and the services must be ones the organization would have purchased if they hadn’t been provided at no charge. Consider the following where there is no recordable donation of services:

  • Your treasurer is a CPA and serves on the board without compensation.
  • Volunteers offer their assistance with painting the building your organization is renovating.
  • Volunteers pull weeds and remove invasive plants from a city park.

Now consider the following donations, which meet the accounting standards for recording:

  • An attorney provides pro bono advice and reviews your employee policy manual.
  • A general contractor oversees the volunteers helping with the renovation.
  • A botanist trains the city park volunteers in identifying the plant species they are about to remove, and supervises their work.

To record these services, you need to know the professional’s billing rate. Calculate the value of their services and record a credit to In-Kind Service Income and a debit to In-Kind Expense – unless they are contributing to the creation of a capital asset, in which case the value of the services should be capitalized.

Nancy Church

About Nancy Church

A CPA in Portland, Oregon with over 20 years experience in auditing, accounting and consulting for nonprofit organizations, Nancy Church is the director and primary driving force behind NFP Accounting Help. A mother of three children, Nancy enjoys music, dancing, working on her old house, hiking, and thinking about how NFPs can create a more effective and efficient accounting process.

  • http://www.TriLibrium.com Brian Setzler, CPA

    This is good information though I would like to point out one difference between GAAP (Generally Accepted Accounting Principles) and tax for non-profit reporting.

    While GAAP requires the inclusion of donated service revenue in the financial statements, these revenues are not recognized for tax on the Form 990 and have to be adjusted out for tax return purposes.

    • http://www.NFPAccountinghelp.org Nancy

      Brian- Yes- you are correct. Thank you for clarifying!

  • Sarah

    Would it be considered an in-kind gift if someone who works at the non-profit donates goods that would have otherwise needed to be purchased and would have be reimbursed if they had requested? They provided a receipt for the value of the goods, but wanted it to be considered a donation instead of being reimbursed.

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