In-kind donations are non-cash contributions to your organization. Recording them correctly shows the true cost of running your programs and gives donors proper acknowledgment for their contributions.

Donated goods like office supplies, auction items, or equipment get recorded at fair market value. The donor should provide an estimate of value when possible. For new items, use retail price. For used items, use what they would sell for in current condition. Record a debit to the appropriate expense or asset account and a credit to in-kind contribution revenue. Both sides of the entry are equal, so the net effect on your bottom line is zero. But the gross figures accurately reflect what your organization received and used.

Donated services are trickier. Not every volunteer hour goes on your books. Under nonprofit accounting standards, you can only record donated services that either create or enhance a nonfinancial asset, or require specialized skills that you would have otherwise purchased. A lawyer providing free legal advice qualifies. An accountant doing your annual audit for free qualifies. A volunteer stuffing envelopes does not, even though their time is valuable to you.

For services that qualify, record them at the rate the professional would normally charge. A CPA donating 10 hours of work at their standard $200 per hour rate gets recorded as $2,000 in professional services expense and $2,000 in in-kind contribution revenue. This makes your financial statements reflect what it actually costs to operate your programs.

Document everything. For each in-kind donation, note the date received, a description of what was donated, how fair market value was determined, and the donor’s name. This documentation supports your financial statements and helps donors who need records for their own tax purposes. You’re not allowed to tell them what their donation is worth for tax purposes, but you can confirm what was donated and describe its condition.

On your Form 990, in-kind donations show up in revenue. Corresponding expenses appear where you’d normally record those costs. A nonprofit receiving $50,000 in donated professional services is really running a more substantial operation than the cash-only numbers would suggest. Grant funders and board members get a more accurate picture when in-kind contributions are properly captured.

If you’re receiving significant in-kind donations, work with a San Diego bookkeeper who understands nonprofit accounting. The rules around what gets recorded and how to value unusual gifts can get complicated, and getting it wrong affects both your financial statements and your donors’ expectations.