At MBS Accountancy, we know that gift cards are a practical and flexible donation type that can benefit a nonprofit’s programmatic and operational efforts. However, like any asset, they must be handled with diligence and transparency. In this improved guide, we incorporate the best practices we follow with our nonprofit clients to help you manage and report gift card donations confidently and compliantly.
Understanding Gift Cards as In-Kind Donations
Gift cards are considered nonfinancial assets and must be recorded as in-kind contributions under Generally Accepted Accounting Principles (GAAP). This means that your organization must record the fair market value of the gift card at the time it is received and ensure that the contribution is accurately reflected in your financial statements. Proper classification and disclosure of these donations are critical to maintaining transparency, building donor trust, and adhering to regulatory compliance. We treat gift cards with the same seriousness as cash or tangible assets to ensure the integrity of financial reporting.
Step-by-Step Accounting Process
Effectively accounting for gift card donations requires more than simply logging their receipt. Your organization should follow a consistent, transparent process from the moment the donation is received to the point of utilization. The following steps outline how we recommend you account for gift card donations in a way that aligns with best practices and ensures compliance with GAAP.
1. Recognize the Donation Upon Receipt
When a gift card is received, it should be recorded immediately at its fair market value—typically the face value, assuming there are no restrictions and the issuer is financially sound. We also recommend confirming that the issuing business is still operational and that the card is redeemable. To record the donation, debit the “Gift Cards on Hand” asset account and credit “In-Kind Contributions” as revenue. This ensures that the asset is included on the balance sheet and the donation is reflected in the income statement.
2. Classify the Asset Properly
Gift cards should be clearly categorized to maintain reporting clarity. We advise nonprofits to include a separate line item under current assets titled “Gift Cards on Hand” to distinguish them from cash or other in-kind donations. This makes it easier to monitor usage and provides a transparent audit trail.
3. Record the Expense Upon Use
When a gift card is used—whether for program activities, client assistance, or supply purchases—it’s essential to record the transaction accurately. Debit the appropriate expense account and credit the “Gift Cards on Hand” asset account. This reflects the consumption of the asset and keeps your books aligned with actual usage.
Best Practices for Internal Controls
In addition to following proper accounting procedures, nonprofits must establish strong internal controls to ensure gift card donations are managed securely and transparently. These practices help prevent misuse, support compliance during audits, and uphold the integrity of your financial reporting. Below are the key controls we recommend implementing to protect and account for these valuable resources effectively.
Develop a Gift Acceptance Policy
We recommend developing a clear, written policy that outlines which types of gift cards your organization will accept, how they will be valued, and how they will be recorded and used. Having such a policy promotes consistency and supports compliance with GAAP.
Secure Storage
Gift cards should be treated like cash. Physical cards must be locked in a secure location, and digital gift codes should be stored in encrypted or access-controlled systems. We advise limiting access to authorized personnel only.
Maintain Detailed Records
Maintaining thorough records is essential. Each gift card entry should include the donor’s name, the date received, the card’s face value, any restrictions, and a record of how and when it was used. This documentation supports internal decision-making and external audits.
Reconcile Regularly
We recommend reconciling gift card records against actual balances on a monthly or quarterly basis. Timely reconciliation helps detect errors, prevent misuse, and ensure the organization’s financial reports are accurate.
IRS Reporting and Audit Readiness
Gift cards are considered non-cash donations and must be reported on IRS Form 990. Your organization should include a description of the donation, the fair market value, the valuation method used, and any restrictions. We also advise including footnotes in your financial statements that provide clarity about the type of gift cards received, how they were used, and how they were classified. Reporting gift card donations separately from cash contributions improves transparency and supports stakeholder understanding.
Avoiding Pitfalls
Failing to properly account for gift card donations can have serious consequences. Misreporting or losing track of gift cards can damage your organization’s credibility and lead to donor dissatisfaction or regulatory issues. We’ve seen how strong recordkeeping and transparent processes prevent these problems and foster long-term donor confidence.
Need Help With Nonprofit Accounting Services?
Gift cards can be a powerful resource for nonprofit organizations—providing flexibility, ease of use, and strong donor appeal. But they must be handled with care. At MBS Accountancy, we help nonprofits like yours follow GAAP, implement strong internal controls, and maintain detailed reporting so that gift card donations are put to their best use. If your organization is navigating the complexities of gift card accounting, we’re here to support you with expertise, structure, and peace of mind.