Workflow: In-Kind Contribution Valuation

In-kind contribution valuation sits at the intersection of accounting precision and donor relations. Getting the fair value right matters for financial statement accuracy. Getting the acknowledgment letter right matters for the donor’s tax deduction. The new disclosure requirements under ASU 2020-07 add a third dimension: financial statement footnotes that most organizations updated after adoption but have not maintained consistently since.

When to run this workflow

Run this workflow each time the organization receives a significant in-kind gift — goods above $250, professional services, or use of facilities. Also run it at fiscal year-end as part of the financial statement preparation process to verify that all in-kind contributions for the year are recorded, the footnote disclosures are complete, and the match documentation for any grants that used in-kind is current.

For recurring in-kind relationships (a law firm that donates services quarterly, a food bank supplier that donates produce weekly), the valuation should be confirmed annually — market rates change, and using a stale value from the year the relationship began is a common error.

Common pitfalls

Recording at the donor’s stated value without verification. Donors sometimes overestimate or underestimate the fair value of what they donated. Your responsibility is to record at actual fair value. If the donor says their donated equipment is worth $50,000 and current market comparable sales show $30,000, record $30,000.

Missing the ASU 2020-07 footnote. Many organizations updated their journal entry practices after adopting ASU 2020-07 but did not update the financial statement footnotes. The new standard requires category-level disclosure with the valuation technique and fair value hierarchy level — not just a general statement that in-kind contributions are recorded at fair value.

Recording general volunteer time. General volunteer time — help at events, administrative support, light manual labor — does not meet the specialized skills requirement and should not be recorded. Organizations that book all volunteer hours as in-kind revenue overstate their contribution revenue and create an audit question.

Overstating in-kind match. For federal grant match purposes, the in-kind value must use comparable market prices documented with verifiable market data. Inflated match valuations that auditors cannot verify are questioned match costs, which reduce the effective match rate and may create a compliance finding.

Audit trail requirements

For each in-kind contribution, maintain:

• Description of the goods or services with enough detail for valuation verification
• The fair value determination memo with methodology, market data sources, and resulting value
• Journal entry with the asset or expense account debited and contribution revenue credited
• Donor acknowledgment letter describing the gift without stating a value
• For federal match: a current-year documentation of the market rate basis

For the financial statements: the ASU 2020-07 footnote must cover each category of contributed nonfinancial assets received, state whether each was monetized or used directly, identify the fair value hierarchy level, describe the valuation technique, and disclose any donor-imposed restrictions.

How GrantPipe automates this

GrantPipe records in-kind contributions with the category classification and valuation methodology attached to the gift record, so the ASU 2020-07 disclosure data is available for financial statement preparation without rebuilding from scratch at year-end. For grants using in-kind match, the match tracking report pulls from the same records, eliminating the double-entry burden between the CRM and the grant compliance file. Start a trial.

DEFINITION

Contributed nonfinancial assets

In-kind gifts to nonprofits consisting of goods (food, clothing, supplies, equipment), use of facilities or utilities, or services requiring specialized skills. The term used by FASB ASU 2020-07 in place of 'in-kind contributions.'

DEFINITION

Fair value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date — the standard used to value in-kind contributions under FASB ASC 820.

DEFINITION

Level 1 / Level 2 / Level 3 inputs

The FASB fair value hierarchy: Level 1 uses quoted prices in active markets, Level 2 uses observable inputs other than quoted prices, Level 3 uses unobservable inputs (the organization's own assumptions). Most in-kind goods are Level 2; specialized assets may be Level 3.

DEFINITION

Contributed services recognition

Under FASB ASC 958-605, contributed services are recognized only when they require specialized skills the recipient organization would otherwise purchase, or when they create or enhance a nonfinancial asset.