You run a tight ship. Your fund balances reconcile, your grants are tracked by restriction, and your audit hasn't produced a material finding in years. But there's one area where even the most disciplined nonprofit finance teams quietly underperform: in-kind donations.
In-kind contributions — non-cash gifts of goods, services, or the use of space — are simultaneously some of the most valuable resources your organization receives and some of the most error-prone transactions in nonprofit accounting. The rules are more specific than most teams realize, and the consequences of getting them wrong range from audit findings to misstated financials to compliance risk on federal grants.
This post walks through everything a nonprofit controller needs to know: what qualifies, what the accounting standards require, how to measure fair value, and what ASU 2020-07 changed about disclosure. We'll also cover the most common mistakes — and how modern fund accounting software eliminates most of them.
What Counts as an In-Kind Donation?
In-kind donations fall into four broad categories under U.S. GAAP (specifically ASC 958, the standard governing nonprofit entities):
1. Goods (Donated Materials and Supplies)
This is the most straightforward category: a donor gives your organization a physical item rather than cash. Examples include food donations to a food bank, office furniture, medical supplies, or equipment. The gift is recorded at its fair value on the date received.
2. Services
This is where it gets more nuanced. Not all donated services are required to be recorded — only those that meet specific criteria (more on that below). Common examples include legal counsel, accounting or audit services, IT support, graphic design, architectural work, and medical services provided by licensed professionals.
3. Use of Facilities
If a landlord donates office space to your organization, or a church lets you use their hall for programs at no charge, the fair rental value of that space is an in-kind contribution that typically must be recorded. This is one of the most frequently overlooked categories.
4. Other Assets (Investments, Securities, Real Property)
Donated stocks, bonds, real estate, and other non-cash assets also constitute in-kind contributions. These are recorded at fair value on the date of the gift and are particularly common in major gift programs.
ASC 958 Recognition Rules: What Must Be Recorded — and What Doesn't Have To Be
Here's where many nonprofits go wrong by assuming all donated services should be recorded, or by assuming none of them should be. The standard is specific.
Goods and the use of assets: Always recognize. If a donor provides physical goods or allows your organization to use property (facilities, equipment, intellectual property), you must recognize the contribution at fair value. No exception.
Specialized professional services: Must recognize. ASC 958-605-25-16 requires recognition of contributed services if the services (a) create or enhance nonfinancial assets, or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.
"Specialized skills" include — but are not limited to — the services of accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, and teachers. If a CPA donates an audit, you record it. If an attorney donates contract review, you record it. If a licensed contractor donates framing labor on your capital project, you record it.
General volunteer time: Optional. The standard explicitly does not require recognition of ordinary volunteer labor — people folding envelopes, staffing a booth, or serving food at an event. You may disclose the value of such time in the notes, but you are not required to record it on the face of the financial statements.
This distinction matters enormously. Many organizations either skip recording the CPA who donated the audit (a clear GAAP omission) or painstakingly try to value every volunteer hour (not required and often not helpful).
Fair Value Measurement and Documentation
Once you've determined that an in-kind contribution must be recognized, you need to measure it at fair value under ASC 820 — the price that would be received to sell the asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
In practice, this means:
For goods: Use the current market price of comparable items in the condition received. For food bank donations, industry guides (such as those published by Feeding America) provide standardized values. For equipment, use comparable market listings or appraisals. Do not use the donor's book value or cost basis — that is one of the most common errors we see.
For services: Use the rate a market participant would charge for the same service. For legal services, use the attorney's standard hourly rate (which should be documented). For space, use comparable market rental rates for similar facilities in the same geographic area.
Documentation required: You need to maintain records that support your valuation. This typically includes a written acknowledgment from the donor, documentation of the fair value methodology used, and — for significant contributions — an independent appraisal. Your auditors will ask for this, and if it doesn't exist, you'll be scrambling at fieldwork time.
A written gift valuation policy is not just good practice — it is a disclosure requirement. If you don't have one, you're missing a required note disclosure.
ASU 2020-07: The Disclosure Rules That Tripped Up a Lot of Organizations
Effective for fiscal years beginning after June 15, 2021, FASB's ASU 2020-07 significantly expanded the disclosure requirements for contributed nonfinancial assets (the formal term for what most people call "in-kind donations").
Under ASU 2020-07, organizations must now:
Disaggregate contributed nonfinancial assets on the statement of activities — either on the face of the statement or in the notes. You can no longer lump all in-kind gifts into a single line item. The disaggregation should be by category (goods, services, use of facilities, etc.) in a way that is meaningful to financial statement users.
Disclose qualitative information about how each category of contributed nonfinancial assets was used — whether it was monetized or utilized, and the policies around monetization.
Disclose the valuation technique and inputs used to arrive at fair value for each category. This is the codification of what good practice already required, but it's now formally mandatory.
Disclose whether donor-imposed restrictions exist on the use of contributed nonfinancial assets.
The update sounds like a lot of additional work, but the underlying premise is straightforward: donors, grantors, and auditors deserve to understand what kinds of non-cash resources your organization received, how much they were worth, how you determined that worth, and whether there are strings attached.
If your most recent financial statements don't include this level of disaggregation and qualitative description, it's worth a conversation with your auditor before the next close.
The Most Common Mistakes Nonprofits Make with In-Kind Accounting
After working with hundreds of nonprofit finance teams, the same errors appear again and again:
1. Not recording in-kind contributions at all. The most prevalent issue. Organizations receive donated services or goods, mentally note that "it was free," and never put anything on the books. This understates both revenue and expense, distorts program cost reporting, and can affect grant applications that require matching documentation.
2. Using the donor's cost basis instead of fair value. A donor gives you equipment they purchased five years ago for $10,000. It's now worth $3,000. Recording it at $10,000 inflates your assets and overstates contribution revenue. Fair value on the date of receipt is the rule — not original cost.
3. Missing the gift valuation policy disclosure. ASC 958 requires disclosure of the policies used to determine the reported values of contributed services and other assets. If your notes don't include this, you have a disclosure deficiency regardless of whether the individual valuations are accurate.
4. Recording general volunteer time as revenue. While well-intentioned, this creates GAAP violations. ASC 958 is explicit that general volunteer labor not requiring specialized skills is not recorded. If auditors find it on your books, it must be reversed.
5. Skipping the ASU 2020-07 disaggregation. Many organizations updated their policies when ASU 2020-07 became effective but didn't update their actual disclosures. A single line for "contributed goods and services" no longer satisfies the standard.
6. Inadequate documentation. Even if the valuation is correct, the inability to support it during an audit is a finding. Documentation must be contemporaneous — collected at the time of receipt, not reconstructed later.
How Fund Accounting Software Helps You Get This Right
Manual processes can handle in-kind accounting — but they create unnecessary risk. Every in-kind transaction requires a judgment call about recognition, a fair value determination, documentation, and eventual disclosure. When those steps live in someone's head or a disconnected spreadsheet, things fall through the cracks.
Purpose-built fund accounting software addresses this at every step. It allows you to configure recognition rules aligned with ASC 958 so that contributions are flagged for review based on type. It maintains valuation documentation directly linked to transactions. It produces note disclosure templates pre-populated with the disaggregated categories required under ASU 2020-07. And when auditors request support for in-kind transactions, you can pull a complete audit trail in minutes rather than hours.
The difference isn't just efficiency — it's confidence. When your auditor walks in, you want to be the organization that hands over a clean schedule with full documentation attached, not the one scrambling to reconstruct valuations from emails.
Build the Foundation Now
In-kind accounting is one of those areas where informal habits accumulate quietly until they become a material problem. The good news is that the rules are clear, the documentation requirements are manageable, and the right systems make compliance straightforward rather than burdensome.
Start with a review of your current gift acceptance and valuation policy. Make sure your notes match ASU 2020-07. Then ask whether your current accounting system makes it easy — or hard — to do this correctly at scale.
If you're ready to modernize how your organization handles fund accounting, Account Cloud Unity was built specifically for nonprofits navigating exactly these challenges. From restricted fund tracking to in-kind disclosure schedules, it gives your team the structure to close with confidence and face every audit ready.