Accounting for Not-For-Profit Conditional Vs Unconditional Contributions

Contributions Classification

To account for contributions, the NFP entity first need to determine if the contribution or promise to give is conditional or unconditional. A promise to give is a written or oral agreement to contribute cash or other assets to other entity. The promise to give can be:

  1. Unconditional; recognize as revenue in the year promised. It depends only on the passage of time or demand by the promise for performance.
  2. Conditional; no recognition until the condition is removed. It depends on the occurrence of a specified future and uncertain event to bind the promise.

GAAP requires a not-for-profit entity to determine whether a contribution is conditional on the basis of whether an agreement includes a barrier that must be overcome and either

  • a right of return of assets transferred or
  • a right of release of a promisor’s obligation to transfer assets.

For a donor-imposed condition to exist, it must be determinable from the agreement, or any other document referenced in the agreement. In addition, barriers exist that must be overcome for the not-for-profit entity to be entitled to the transferred assets or future transfer of assets. In cases of ambiguous donor stipulations, a contribution agreement including stipulations that are not clearly unconditional shall be presumed to be a conditional contribution.

Accounting for Conditional Contribution

If there’s a barrier that the NFP entity has to overcome to receive the promised contribution, then the entity should not recognize the promise to give until the entity overcomes that barrier. For example, if a donor promises to contribute $100k only if the entity can raise $500k for a specific project, then the entity should not recognize that $100k promise to give until it raises the $500k barrier.

What if the donor make a conditional cash contribution? For example, if the donor in the previous example made the $100k payment to the entity, then the entity should book this contribution as a liability until it overcomes the barrier as follows:

Upon receipt of the payment

               Dr: Cash $100k

               CR: Contract liabilities $100k

When the entity overcomes the barrier of raising $500k:

               Dr: Contract liabilities $100k

               Cr: Contribution revenue $100k (with/out donor restriction)

Accounting for Unconditional Contribution

The NFP entity recognize the unconditional contribution in the year received or promised. For example, a donor promised to give $100k by the end of the month, the NFP entity will book the below entry:

               Dr: Grants/contributions receivable $100k

               Cr: Contribution revenue $100k (with/out restriction)

When cash is received:

               Dr: Cash $100k

               Cr: Grants/contributions receivable $100k

The accounting treatment for NFP revenue recognition can be challenging and time consuming, if you need help, we can help your organization properly account for the gifts your organization receives. We have helped many NFP entities with their revenue recognition, so we’re pretty familiar with the process. Contact us if you have any questions or you need help with your entity’s accounting.


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