In-kind donations are non-cash contributions like goods, professional services, or use of space. They need to be recorded at fair market value as both revenue and an asset or expense, depending on what was donated.

For donated goods like furniture, equipment, or auction items, you record the fair market value as contribution revenue on one side and either an asset or expense on the other. New items are typically valued at retail price. Used items should be based on comparable sales or a professional appraisal for anything significant.

Donated services follow stricter rules. Under GAAP, you only record donated services when they create or enhance a nonfinancial asset, or when they require specialized skills that would typically need to be purchased if not donated. An attorney donating legal work gets recorded. A CPA providing free audit services gets recorded. A volunteer stuffing envelopes does not, even though that time has real value to your organization. The distinction matters because recording volunteer time that doesn’t qualify inflates your revenue and expenses in misleading ways.

When contributed services do qualify, debit the appropriate expense account and credit contribution revenue at fair market value. That value is typically what the professional would charge a paying client for the same work.

Use of facilities follows the same logic. If someone lets your nonprofit use meeting space that would normally rent for $500 per month, you record $500 in contribution revenue and $500 in occupancy expense each month.

Documentation matters for every in-kind donation. Keep a record of what was donated, the date, the donor’s name, a description of the item or service, and how you determined fair market value. Donors need written acknowledgment letters for their own tax deductions, and your organization needs supporting documentation for the values reported on the Form 990 and in your financial statements.

The ASU 2020-07 standard also requires nonprofits to present contributed nonfinancial assets as a separate line on the statement of activities and include disclosures about valuation methods and any donor restrictions. Even smaller organizations should follow this standard to maintain credibility with grantors and major donors.

The most common mistake we see is simply not recording in-kind donations at all. Organizations receive thousands of dollars in donated goods and services throughout the year and never put them on the books. This understates both revenue and program costs, making the organization appear smaller and less impactful than it really is. It also means the Form 990 doesn’t reflect the full picture of operations.

Getting this right takes a consistent process. Create an intake form for in-kind gifts, assign someone to determine fair market value at the time of receipt, and make sure entries reach your accounting system monthly. If tracking has fallen behind or you’re unsure about valuations, working with a firm that handles small business and nonprofit bookkeeping can prevent issues during audits, grant reporting, and year-end filing.