December 2017 – Conditional vs. Unconditional Promise-to-Give

What is conditional promise-to-give?

Conditional promise-to-give is defined as a donor promise to contribute assets to a nonprofit organization upon satisfaction of specified or uncertain future events. For example, in Sep 2016 Donor A promised to give $100,000 to a nonprofit organization if the organization could obtain at least $50,000 from other fundraising activities by Dec 31, 2016.

Accounting treatment

Assuming that as of Dec 31, 2016 the organization managed to raise $55,000 and hence satisfied the condition. Therefore, in Dec 2016 the organization would recognize $100,000 promise-to-give as revenue (the corresponding account is Grants Receivable).

In case the organization raised less than $50,000, it did not satisfy the condition and hence could not recognize the $100,000 revenue.

What is unconditional promise-to-give?

Unconditional promise-to-give is defined as a donor promise to contribute assets to a nonprofit organization without any stipulated conditions. For example, in Nov 2016 Donor A pledged to donate $5,000 each year for the next 5 years. In this case, accounting department would recognize $25,000 revenue in Nov 2016 (even though actual cash will be equally received in the next 5 years).

Evidence required

A promise-to-give should not be recognized as revenue without evidence of agreement with the donor. The best form of evidence is a signed agreement or letter from the donor laying out all the terms of the pledge clearly. If there are no such signed documents, no revenue should be recognized.

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