by Michael A. Staton, CPA, managing director, Alerding CPA Group
In-kind donations have been part of the nonprofit world for a long time. Galas have silent auctions that require a significant number of items to be contributed for their donors to bid on and generate contributions for the organization to fund its nonprofit mission.
Items are needed to perform the services nonprofits offer to benefactors and perform day-to-day tasks. Examples of such donations can include a box truck to deliver food, clothing, or kitchen equipment used in food preparation to serve to the homeless. The list goes on and on of the many types of items that nonprofits receive on a daily basis from generous donors.
Any non-cash item that a nonprofit receives from a donor is considered an “in-kind” donation and carries its own specific measurement and reporting requirements. In-kind contributions are categorized into two main classifications under U.S. GAAP. They are classified as either in-kind “goods” or in-kind “services.” In-kind goods or services should be valued and recorded in your general ledger based on fair market value.
Fair market value is the price you would have paid for the goods or services if you would have had to go out and purchase the items. Remember, the general rule for donated services is still that you only record the cost of the service if you would have “purchased the service if they had not been donated.” Most volunteer hours are still not considered in-kind donations of services; only those that are specialized.
In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07 on Topic 958. The new ASU addresses Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The new ASU was not aimed at changing how we recognize the In-kind contributions, but rather on providing transparency on the disclosure of the donations to the readers of the organization’s financial statements.
The new guidelines require the nonprofit to report the in-kind donations on a separate line in the Statement of Activities so the reader can clearly identify the number of in-kind contributions recognized by the organization. Cash and non-cash donations can no longer be grouped under the “contributions” line item.
There are also several changes that will need to be made to the note disclosures if your organization provides formal statements to its contributors and benefactors. All in-kind contributions will be disclosed by the type of asset contributed. Examples would include legal services, advertising, equipment, materials, food, clothing, etc. The disclosures would also include specific information on whether the asset was “monetized or utilized” by the organization.
The policy used to determine whether to monetize or utilize an asset. If the asset was utilized the organization would describe the programs that benefited from the donation. If monetized, then the organization must disclose their policy on how donations are monetized and any restrictions on the use of the funds. All these changes are part of the overall transparency initiative of FASB and are geared toward providing donors better information.
For more guidance, contact an Alerding CPA Group account representative to discuss this and any other issues you might have.