How Should Nonprofits Account for Gifts-in-Kind and Donated Services?

Nonprofits often receive valuable support that does not come in the form of cash.

Examples include:

  • donated food;

  • clothing;

  • equipment;

  • supplies;

  • vehicles;

  • professional services;

  • rent-free space;

  • advertising;

  • legal services; and

  • other contributed goods or services.

These contributions can create unique accounting and disclosure requirements.

The key question is not simply whether something was donated.

It is whether the contribution meets the criteria for financial statement recognition, how it should be valued, and what disclosures are required.

What Is a Gift-in-Kind?

A gift-in-kind is a noncash contribution of goods, property, or other assets.

Common examples include:

  • food;

  • medical supplies;

  • office furniture;

  • computers;

  • vehicles;

  • inventory;

  • artwork;

  • equipment;

  • securities; and

  • use of facilities.

When a nonprofit receives a contributed nonfinancial asset, it may need to recognize the contribution at fair value in the financial statements.

The accounting depends on the nature of the item, any donor restrictions, and how the organization ultimately uses or disposes of the contribution.

Are Donated Goods Recorded as Revenue?

Often, yes.

If a nonprofit receives a donated asset that meets recognition criteria, the organization generally records contribution revenue at fair value when the contribution is received.

For example, assume a nonprofit receives donated equipment worth $20,000.

The organization may record:

Contribution revenue: $20,000

and

Equipment: $20,000

The subsequent accounting depends on the asset.

Equipment may be capitalized and depreciated.

Donated inventory may later be expensed when distributed or used.

Other contributed goods may be recognized as expense when consumed.

What About Donated Services?

Donated services are treated differently from donated goods.

Nonprofits generally do not record every hour of volunteer time as revenue and expense.

Under U.S. GAAP, contributed services are generally recognized when they either:

  • create or enhance a nonfinancial asset; or

  • require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if they were not donated.

Examples may include services provided by:

  • attorneys;

  • accountants;

  • architects;

  • physicians;

  • nurses;

  • engineers; or

  • other professionals providing specialized expertise.

Ordinary volunteer activity often does not meet the recognition criteria even though it may be extremely valuable to the organization.

Example: Donated Legal Services

Assume a law firm provides $15,000 of legal services to a nonprofit at no charge.

The nonprofit would otherwise have needed to hire legal counsel for that work.

If the services meet the applicable recognition criteria, the organization may record:

Professional services expense: $15,000

and

Contribution revenue: $15,000

The transaction increases both revenue and expense, even though no cash changes hands.

That can surprise nonprofit leaders who are looking only at the bank account.

Example: General Volunteer Hours

Now assume 50 volunteers contribute hundreds of hours staffing a community event.

Those volunteers provide significant value to the organization.

But unless the services meet the accounting recognition criteria, those hours generally would not be recorded as contribution revenue and expense in the financial statements.

The organization may still track volunteer activity for:

  • internal reporting;

  • grant applications;

  • impact reporting;

  • management purposes; or

  • donor communications.

Financial statement recognition and organizational value are not always the same thing.

How Should Gifts-in-Kind Be Valued?

Recognized noncash contributions are generally measured at fair value.

Fair value should be based on supportable information rather than an arbitrary estimate.

Depending on the contribution, valuation support might include:

  • market prices;

  • vendor quotes;

  • retail or wholesale pricing;

  • appraisals;

  • comparable transactions;

  • professional fee schedules; or

  • other observable market information.

The organization should retain documentation supporting the value assigned.

Who Is Responsible for Determining Fair Value?

Management is responsible for the nonprofit's financial statements, including the values assigned to contributed assets and services.

The auditor does not create management's valuation simply because the organization is being audited.

For material contributions, management should have a reasonable and documented process for determining fair value.

Complex assets may require additional expertise.

For example, donated:

  • real estate;

  • artwork;

  • specialized equipment; or

  • other unusual property

may warrant an independent appraisal or other valuation support.

What If the Donor Provides a Value?

A donor's stated value can be useful information, but it should not automatically be treated as the accounting value.

The nonprofit is still responsible for determining the appropriate fair value for financial reporting.

This is particularly important when the donor's value is:

  • unsupported;

  • based on cost rather than current value;

  • unusually high or low; or

  • derived for tax purposes rather than financial reporting.

The organization should maintain its own support for the amount recorded.

How Should Donated Space Be Treated?

Donated use of facilities can also require analysis.

For example, a nonprofit may be allowed to use office space or an event venue without paying normal rent.

Depending on the terms and applicable accounting guidance, the organization may need to recognize the value of that contributed use.

Supporting documentation might include:

  • lease terms;

  • comparable rental rates;

  • market information; and

  • details about the period of donated use.

Longer-term arrangements can create additional accounting considerations and should be evaluated carefully.

What About Donated Advertising?

Donated advertising can also be a noncash contribution.

For example, a media company may provide free advertising space or airtime.

If the contribution meets recognition requirements, management should consider whether contribution revenue and a corresponding advertising or program expense should be recorded at fair value.

The organization should document:

  • what was donated;

  • the period of use;

  • comparable market rates; and

  • how the value was determined.

Donor Restrictions Still Matter

A noncash contribution can also be donor-restricted.

For example, a donor might contribute equipment specifically for use in a particular program.

The organization should understand both:

What was donated?

and

What restrictions did the donor place on its use?

That restriction may affect the classification of the contribution in the financial statements and the organization's internal tracking.

Gifts-in-Kind Can Affect Functional Expenses

Nonprofits often report expenses by both nature and function.

A recognized noncash contribution may therefore affect functional expense reporting.

For example, donated medical supplies used entirely in a healthcare program may be classified as a program expense.

Donated legal services related to governance may be classified as management and general.

The classification should reflect how the contributed resource was actually used.

What Disclosures Are Required?

Nonprofits have specific financial statement disclosure requirements for contributed nonfinancial assets.

Under current U.S. GAAP, contributed nonfinancial assets are generally presented separately from cash and other financial contributions in the statement of activities.

Organizations also disclose qualitative and quantitative information about categories of contributed nonfinancial assets, including matters such as:

  • whether the assets were monetized or used during the period;

  • how they were used;

  • applicable donor restrictions;

  • valuation techniques and inputs; and

  • the principal market used in determining fair value when relevant.

These disclosures are intended to provide greater transparency about the nature and valuation of gifts-in-kind.

Build a Consistent Tracking Process

A nonprofit receiving regular noncash contributions should create a repeatable process.

For each material gift-in-kind, track:

  • donor;

  • date received;

  • description;

  • quantity;

  • restriction, if any;

  • fair value;

  • valuation methodology;

  • intended use;

  • actual use or disposition; and

  • supporting documentation.

For contributed services, also document:

  • the service provided;

  • who provided it;

  • whether specialized skills were required;

  • whether the organization would otherwise have purchased the service; and

  • how fair value was determined.

This information makes year-end accounting and financial statement disclosure much easier.

Common Gifts-in-Kind Accounting Mistakes

Common problems include:

  • recording all volunteer hours as contribution revenue;

  • failing to record qualifying donated professional services;

  • accepting the donor's stated value without support;

  • failing to document valuation methodology;

  • missing donor restrictions;

  • failing to classify the related expense appropriately;

  • overlooking donated space or other contributed use arrangements;

  • failing to separately present or disclose contributed nonfinancial assets; and

  • waiting until year-end to reconstruct noncash contribution activity.

These issues can affect financial statements, audit readiness, grant reporting, and Form 990 reporting.

Do Gifts-in-Kind Affect Form 990?

Potentially.

Form 990 includes reporting requirements for noncash contributions and certain donated services or facilities.

However, tax reporting and GAAP financial statement reporting do not always treat these items identically.

Organizations should avoid assuming that the amount reported for accounting purposes will automatically appear the same way on Form 990.

Coordination between the accounting records, financial statements, and tax return can help prevent unexplained differences.

The Bottom Line

Noncash contributions can provide tremendous value to a nonprofit, but they also require thoughtful accounting.

The organization should determine:

Does the contribution meet the criteria for recognition?

What is its fair value?

Is it donor-restricted?

How was it used?

What disclosures are required?

Strong documentation is essential.

A well-designed process for gifts-in-kind and donated services supports accurate financial statements, cleaner audits, better Form 990 reporting, and greater transparency for boards and stakeholders.

How Bilotta & Company Can Help

Bilotta & Company, CPAs, LLC works with nonprofit organizations on accounting, financial reporting, audits, reviews, Single Audits, Form 990 compliance, and ongoing financial stewardship.

Through our Nonprofit Navigator® Financial Stewardship program, we help organizations build accounting processes that address contributions, restrictions, grants, gifts-in-kind, functional expenses, and other nonprofit-specific financial reporting requirements.

The objective is to make unusual transactions easier to identify, document, and report correctly throughout the year.

Related Resource: What Is Fund Accounting for Nonprofits? →

Related Resource: How Should Nonprofits Track Restricted Funds? →

Explore Nonprofit Navigator® →

Visit the Nonprofit Financial Resource Center →

This article is provided for general educational purposes and should not be considered accounting, tax, legal, valuation, or donor-advisory guidance for a specific organization or contribution.