How to Record In-Kind Donations in QuickBooks Online

How to Record In-Kind Donations in QuickBooks Online

Record an in-kind donation in QuickBooks Online with two entries: a sales receipt that books the fair market value as income, and a bill that offsets it as an expense (or asset, if it's something you'll use rather than distribute). Get the accounts set up once, and every future in-kind gift takes about two minutes to enter correctly.

Skipping this step is the single most common bookkeeping gap at small nonprofits. Someone drops off a box of supplies, nobody enters it anywhere, and by year-end your books understate both your revenue and your program expense by exactly the same amount. Since 2022, US nonprofit financial statements have had to break out in-kind (non-cash) contributions as their own line, separate from cash gifts, under FASB's updated reporting standard. If your books don't capture the gift when it happens, you're reconstructing it from memory in March.

Set up the two accounts you need, once

Before recording anything, check your Chart of Accounts to make sure you don't already have an "In-kind donations" account. Nonprofits that have been on QuickBooks a while sometimes have one buried under a different name.

Create the income account. Go to Settings > Chart of Accounts > New, and set:

• Account name: "In-kind donations"
• Account type: Income
• Detail type: Non-Profit Income Create a clearing account. This is a workaround, not a real bank account, and it exists so the sales receipt and bill can offset each other without touching real cash:
• Account name: "In-kind Clearing"
• Account type: Bank
• Detail type: Checking
• Opening balance: $0 Create the service item. Go to Settings > Products and Services > New > Service:
• Name it something like "In-kind donation" or "Donated goods"
• Under Sales, set the Income account to "In-kind donations"
• Under Purchasing, check "I purchase this service from a vendor"

Record the actual donation

Once the accounts exist, every gift is a two-step entry.

Step one, the sales receipt. Select + Create > Sales receipt. Choose the donor as the customer, enter the date of the gift, set "Deposit To" as your In-kind Clearing account, choose your in-kind service item, and enter the fair market value as the amount. This is the transaction that shows the gift as revenue.

Step two, the bill. Select + Create > Bill. Set the vendor field to the donor's name, enter the same item and the same fair market value. This is the transaction that shows the gift as an expense (or, if it's an asset you'll keep and use rather than distribute, code it to a fixed-asset account instead).

Step three, clear the bill. Select + Create > Pay bills, choose the In-kind Clearing account as the payment account, check the box next to the bill, and save. The two entries net to zero in your clearing account, exactly as they should, since no actual cash moved.

The part QuickBooks won't tell you: valuing the gift

QuickBooks will happily record whatever number you type in. It has no opinion on whether that number is right. Fair market value for a donated good is what a willing buyer would pay a willing seller in the open market, not what the donor originally paid for it and not an inflated number to make the gift look bigger. A pallet of unopened, in-date canned goods gets valued at current retail. A used laptop gets valued at what a comparable used laptop actually sells for, not its original purchase price.

This is the one step worth a five-minute conversation with your accountant before your first entry, especially for anything over a few hundred dollars or anything that isn't a straightforward retail good. Get the valuation approach right once and every entry after that follows the same rule.

Why the two-entry structure exists

It looks like unnecessary busywork the first time you do it, doubling one transaction into two. It exists because a donation has to show up twice in your accounting to reflect what actually happened: your organization received value (revenue) and your organization used that value for its mission (expense or asset). Recording only the income side overstates your net assets. Recording only the expense side, or not recording it at all, understates both your revenue and the true cost of your programs. Funders and auditors reading your Form 990 or annual statements expect to see in-kind gifts as their own line, not folded into cash or left out.

FAQ

Do I need special QuickBooks software to record in-kind donations, or does the regular version work? The regular QuickBooks Online version works. You're not using a nonprofit-specific product feature, just standard sales receipts, bills, and a manually created clearing account.

What if the donated item is something we'll use ourselves, not give away? Code the bill side to a fixed-asset account instead of an expense account if it's something with lasting value you'll use over time, like equipment. Ask your accountant where the line sits for your organization.

Who decides the dollar value I enter? The nonprofit estimates fair market value for its own books. For the donor's own tax deduction, the IRS puts that responsibility on the donor, not the charity. Keep your internal valuation and the donor's claimed value as separate questions.

What happens if I never record in-kind gifts at all? Your financial statements understate your real revenue and program costs by the same amount, which can distort ratios funders and grant reviewers look at, like program-expense percentage. It also leaves you with an incomplete Form 990.

If your in-kind gifts are coming in as one-off drop-offs with no paper trail at all, that's worth fixing before the bookkeeping, not after. What is an in-kind donation covers the basics if in-kind giving is new to your org, and a platform like Givelink gives you a dated, itemized record of every gift as it happens, which makes this whole entry process closer to copy-paste than reconstruction.