Five Minutes for Finance -- In-Kind Donations
Understanding In-Kind Donations in the Nonprofit Sector
A previous article described the differences between restricted and unrestricted donations. One type of unrestricted donation is known as an “In-Kind” donation. This type of donation plays a vital role in supporting the mission and operations of nonprofit organizations. Unlike cash contributions, in-kind donations consist of goods or services that are donated directly, helping nonprofits reduce expenses, increase programmatic capacity, and build community engagement.
What Are In-Kind Donations?
In-kind donations are non-cash gifts made to a nonprofit. These can include:
Goods: office supplies, furniture, computers, clothing, food, equipment, vehicles, etc.
Services: legal advice, graphic design, IT support, marketing services, and other professional or skilled volunteer work. These are often referred to as “pro bono” services.
Use of Property or Facilities: donated event space, temporary office space, or equipment rentals at no cost.
These contributions can come from individuals, businesses, foundations, or other organizations and can be just as valuable as monetary support.
Benefits of In-Kind Donations
Cost Savings: In-kind gifts reduce the amount a nonprofit must spend on goods or services, freeing up cash for other mission-critical activities.
Enhanced Capacity: Donated professional services (such as accounting or legal support) provide access to expertise that may otherwise be unaffordable.
Community Engagement: In-kind contributions offer businesses and individuals a way to participate in a nonprofit’s mission, sometimes as a stepping stone to future financial support.
Program Support: Tangible goods (such as food or educational supplies) may go directly into programs, helping nonprofits serve more beneficiaries.
Accounting for In-Kind Donations
Nonprofits must properly record in-kind donations according to accounting standards. In the U.S., that means following Generally Accepted Accounting Principles (GAAP). For goods or services to be recognized as revenue:
The donation must be measurable and have a determinable fair market value.
The service must either:
Create or enhance a non-financial asset (e.g., construction of a building), or
Require specialized skills, be provided by someone possessing those skills, and typically be paid for if not donated (e.g., legal or medical services). An example of this is an attorney providing discounted or pro bono legal services to a nonprofit organization negotiating a complex contract. However, if an attorney volunteers to stock shelves at a food bank, this does not qualify as an in-kind donation for accounting purposes because the service (stocking shelves) does not require specialized skills.
These contributions are recorded as both revenue and a corresponding expense or asset. This ensures financial statements reflect the true scope of the nonprofit’s activities and the value of support received.
When recognized as both revenue and expense, the net effect on the Statement of Activities is zero. Why, then, would it be important to recognize them in the first place? Here are some thoughts:
On the revenue side, showing in-kind revenue is a way to show the level of support that the community is providing to the nonprofit organization. A broader and larger scope of community support underlines the importance of the organization’s mission and impact.
On the expense side, showing the related expense of the in-kind donation helps the organization understand the full cost of achieving its mission. If the goods or services had not been donated the organization would, most likely, have needed to pay for them. This practice helps to show what level of resources the organization requires to do its work.
Acknowledging and Valuing In-Kind Support
While nonprofits can (and should) acknowledge in-kind contributions with a written thank-you or donation receipt, it is the donor’s responsibility to determine the fair market value of the gift for tax deduction purposes. However, organizations may provide a general description of the item or service received.
For example:
“Thank you for your donation of catering services for our fundraising event. We greatly appreciate your generosity.”
Nonprofits should never assign a dollar value in acknowledgments unless required by law or a grant reporting requirement.
Best Practices for Managing In-Kind Donations
Establish a clear policy on accepting in-kind gifts, including criteria for usability, storage capacity, and condition.
Train staff and volunteers to properly handle, document, and acknowledge in-kind contributions.
Track all in-kind donations in your donor database and financial records, even if they are not required to be recognized in financial statements.
Communicate needs clearly—a wish list or in-kind donation guide can help donors contribute items of actual use.
Conclusion
In-kind donations are an essential component of nonprofit resource development. When managed effectively, they not only provide resources and enhance services but also strengthen relationships between the organization and the community. Proper accounting and stewardship of in-kind gifts ensure transparency, maintain donor trust, and reflect the true breadth of support that makes a nonprofit’s work possible.
About this Series
Subsequent articles in this series will cover other topics related to nonprofit financial management. Here is a list of, with links to, previous articles:
About the Author
For over 30 years, Robert Pascual has been a leader in nonprofit financial management as a CFO, consultant, conference speaker and educator. He holds an MBA from the Haas School of Business at the University of California and is the founder and principal of Robert Pascual, MBA LLC. He has worked with small, mid-size, and large nonprofit organizations spanning the fields of education, workforce development, housing, health, philanthropy, social services, media, fiscal sponsorship, nature, and the environment. Each of these organizations has faced both unique and common challenges, some of which are probably similar to ones that you wrestle with.