A local food bank receives a truckload of canned goods from a grocery chain. A law firm handles a nonprofit's contract review for free. A construction company donates the labor to build a playground. None of these organizations wrote a check, yet each one just received a gift that has to show up on the nonprofit's financial statements — at fair market value, in the right category, with the right footnote disclosure.
Most nonprofits get this wrong in one direction or another. Some skip recording in-kind gifts entirely because "no cash changed hands." Others record them but bury the number in a single vague line item, or guess at a value with no documentation to back it up. Both mistakes create real problems: understated financials that hide the true scale of an organization's operations, or overstated ones that don't survive an audit.
Since 2020, the rules for handling this have gotten considerably more specific. Here's what every nonprofit — from an all-volunteer soup kitchen to a multi-program regional charity — needs to know about recording gifts-in-kind correctly.
What Counts as a Gift-in-Kind
A gift-in-kind (also called a contributed nonfinancial asset) is any donation that isn't cash or a marketable security. That's a broad bucket. Common examples include:
- Goods: food, clothing, medical supplies, equipment, vehicles, inventory
- Facilities: free or below-market use of office space, event venues, storage
- Professional services: legal work, accounting, architectural design, IT consulting, marketing
- Materials: building supplies, software licenses, advertising space
- Specialized volunteer labor: skilled trade work that creates or improves an asset, like an electrician wiring a new facility
Not everything a volunteer does counts, though. This is the distinction that trips up the most organizations: only specialized-skill services get recorded as in-kind contributions. If a CPA volunteers to prepare your organization's financial statements, that's a recordable gift-in-kind — she has a professional skill that would otherwise cost you money. If that same CPA spends a Saturday serving meals at your shelter, that's general volunteer labor, and under U.S. GAAP it does not get recorded as revenue, no matter how many hours she puts in. The rule (found in ASC 958-605) is specifically about services that either require specialized skills that the donor possesses and would typically need to be purchased if not donated, or that create or enhance a nonfinancial asset.
The Standard That Changed Everything: ASU 2020-07
For years, nonprofits had wide latitude in how they presented gifts-in-kind, which made it hard for donors, grantmakers, and watchdogs to compare organizations or spot inflated valuations. The Financial Accounting Standards Board closed that gap with Accounting Standards Update 2020-07, effective for fiscal years beginning after June 15, 2021 — so it's now been the law of the land for several full audit cycles, and auditors have little patience left for organizations that haven't adapted.
ASU 2020-07 requires nonprofits to:
- Present contributed nonfinancial assets as a separate line item in the statement of activities, distinct from cash contributions and grants.
- Disaggregate that line item by category in the footnotes — food, medical supplies, professional services, facility use, and so on — rather than lumping everything into one number.
- Disclose the valuation technique and inputs used to arrive at fair value for each category, including the principal market considered.
- Disclose whether the organization monetized or used the gift, and if used, describe how. If a donor placed restrictions on the gift, that has to be disclosed too.
The intent is straightforward: a $500,000 "in-kind revenue" line that's actually $480,000 of donated pharmaceuticals and $20,000 of pro bono legal work tells a very different story than $500,000 spread evenly across ten categories. Funders increasingly read these footnotes closely, particularly for organizations — food banks, disaster relief agencies, health charities — where in-kind gifts make up a large share of total support.
How to Actually Value These Gifts
The valuation standard is fair value under ASC 958-605: the price that would be received to sell the asset (or paid to transfer a service) in an orderly transaction between market participants at the measurement date. In practice, that plays out differently depending on what you received.
For goods, look for a comparable retail or wholesale price in the market the donor would normally use to dispose of the asset — not necessarily what your organization would pay if it bought the item retail. A pallet of expired-soon canned food from a manufacturer isn't valued the same as fresh inventory off a grocery shelf.
For professional services, ask the donor what they would have billed at their standard rate, and multiply by hours worked. Document the rate and the hours — an auditor will ask for both.
For facility use, use a market rental comparable for similar space in the same area, prorated for the actual period of use.
For specialized volunteer labor that builds or improves an asset (like a contractor donating framing labor on a new shelter), value it at what you'd have paid a professional to do the same work.
For high-value or unusual items — art, vehicles, real estate, anything north of $5,000 — get an independent, qualified appraisal. Both GAAP and the IRS take a harder look at self-estimated values above that threshold, and the donor generally needs a qualified appraisal anyway to claim their own tax deduction on gifts over $5,000.
Whatever the category, write down your methodology at the time you record the gift, not months later when your auditor asks. "Donor quoted their standard hourly rate of $200/hr for 25 hours of grant-writing consultation, per email dated [date]" is the kind of note that turns a five-minute audit conversation into a non-issue.
Recording the Entry
Once you have a value, the bookkeeping is symmetrical: record the same amount as both a revenue and an offsetting expense (or asset) in the same period, so the entries wash out and don't distort your bottom line while still capturing the full scope of activity.
For a $10,000 pro bono legal engagement, that looks like:
- Debit: Legal Expense (functional expense account) — $10,000
- Credit: In-Kind Contribution Revenue — Professional Services — $10,000
For donated inventory you plan to distribute rather than resell, the debit typically hits a program expense account (like "Food Distributed") rather than sitting on the balance sheet as inventory, unless you're holding it for later use — in which case it starts as an asset and moves to expense when it's actually used.
Because this is fundamentally a double-entry problem — a contribution on one side, a matching expense or asset on the other, tagged by category and by fund if you track restricted vs. unrestricted support — plain-text, version-controlled accounting tools handle it cleanly. Every in-kind gift becomes an auditable transaction with a clear paper trail, rather than a spreadsheet adjustment someone has to remember to make at year-end.
The Mistakes That Show Up in Audits
A handful of errors account for most of the gift-in-kind findings auditors report:
- Not recording gifts-in-kind at all, on the theory that "nothing was paid so there's nothing to book." This understates both revenue and expense and can materially misstate the size of your programs — a real problem if you're applying for grants that ask about program scale.
- No documentation trail for how a value was determined. An entry with a dollar figure and no supporting note is one of the first things an auditor flags, because it can't be verified as fair value under an orderly transaction.
- Treating general volunteer time as an in-kind contribution. Even large numbers of volunteer hours from people without a specialized, otherwise-billable skill don't belong on the statement of activities under GAAP (you can still track and report them separately for grant purposes — just not as revenue).
- Skipping the disaggregation required by ASU 2020-07 — reporting one lump "in-kind" number instead of breaking it out by category with the required qualitative disclosures.
- Missing Form 990 Schedule M. If your total noncash contributions exceed $25,000 for the year, or you received art, historical treasures, or conservation property at any value, Schedule M is required — and its 28 property categories roughly mirror the disaggregation GAAP already asks for, so if you've done the accounting right, the tax form is mostly a transcription exercise.
Why This Matters Beyond Compliance
Accurate in-kind reporting isn't just about passing an audit clean. Grantmakers and major donors increasingly use these disclosures to gauge how efficiently an organization operates and how diversified its support is. A well-documented, properly categorized gifts-in-kind footnote signals financial discipline — the same signal that accurate books send about a business's operations generally. Nonprofits that treat in-kind valuation as a real accounting function, not an afterthought, tend to also have cleaner financials everywhere else, which makes annual audits faster and cheaper.
Keep Your Nonprofit's Records Clear and Auditable
Whether you're tracking cash contributions, restricted grants, or gifts-in-kind across multiple program categories, the underlying need is the same: a clear, verifiable record of every transaction. Beancount.io provides plain-text accounting that gives nonprofits complete transparency and an audit-ready trail for every entry — no black boxes, no vendor lock-in. Get started for free and see why organizations are switching to plain-text accounting for their books.