What are In-kind Contributions?

Check out our blog What Nonprofits Need to Know About In-Kind Contributions for more details, but in-kind (noncash) contributions are non-monetary donations that include the transfer of any asset, usually goods or services, and can be contributed by an individuals or other organizations and companies.

Here are five things your organization needs to know:

1. How are In-Kind Contributions recorded? In-kind contributions are recorded at fair value as a contribution and as an asset or an expense in the period received. Unconditional promises to give noncash items also need to be recorded as contributions even though the organization may not receive the assets or benefit until a future period. For example, if your organization receives the use of a facility without charge, the amount of the contribution would be the fair value that would be charged for a similar space that is rented under similar terms. This also stands true if your organization receives a discounted rate. Your organization would record the difference between the contractual amount paid and the fair value for that space as in-kind contributions.
2. When are In-Kind Contributions recorded? Donated services that create or enhance a nonfinancial asset do not need to be specialized to be recognized. For example, if your organization is constructing a new building and there are a number of volunteers that help paint the interior, those services would be capitalized as a cost of the construction. Donated services that do not create or enhance a nonfinancial asset must meet three criteria to be recognized:
   
   - Required specialized skill
   - Be provided by entities or persons possessing those skills
   - Would need to be purchased if they were not donated.
   
3. What Goods and Services don’t need to be recorded?
   - Items designated for another entity;
   - Gifts that normally wouldn’t be purchased;
   - Value of volunteer hours unless the volunteer is providing a “specialized skill”.
   
   Organizations often rely on volunteers to provide routine services, for example an animal rescue might use volunteers to walk dogs in their care. Because these services neither create nor enhance a nonfinancial asset, nor require a specialized skill, their value would not be recorded.
   
4. How do you report donated materials used for fundraising events? When organizations are preparing for an auction, they may receive gifts in-kind, such as gift certificates, gift boxes, vacations, merchandise, etc., that are to be used specifically for fundraising purposes. When an organization receives an item to be used at their fundraising event, the gift should be recognized measured at its fair value. Subsequently, when the auction has ended and the amount received for the item has been obtained, the organization should adjust the original contribution amount by the difference between the donated item and amount received. The net effect is the recognized contribution amount representative of the amount received at the auction for the item.
5. What are the disclosure and reporting requirements? Until recently, there were no special presentation or disclosure requirement for contributions of most nonfinancial assets, with the exception of contributed services. However, to improve transparency and consistency among nonprofit organizations, in September 2020, the Financial Accounting Standards Board (FASB) issued an accounting standard update 2020-07 Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-For-Profit Entities for Contributed Nonfinancial Assets. To learn more about the requirements of the new ASU regarding the presentation and disclosures for contributed nonfinancial assets, please see the following blog Nonprofits, Have you Received In-Kind Donations?

Questions? Contact us.