Page 14 - NFP Advisor Vol. 32

UNDERSTANDING

CONTRIBUTION ACCOUNTING

for Nonprofits

A t Cerini & Associates, we understand the unique
challenges you face in managing and reporting
your contributions. Accurate classification
and accounting for contributions are essential for EXAMPLES:
transparency, compliance, and stewardship of
donor funds. Below, we outline the main types of ► Restricted: A donor gives $25,000 to your
contributions, provide practical examples, and offer nonprofit, specifying it must be used to purchase
guidance on determining whether contributions are computers for a youth program.
restricted or unrestricted. Restricted: An estate leaves $100,000 with the
HOW TO DETERMINE IF A ►
CONTRIBUTION IS RESTRICTED: stipulation that it be invested as an endowment and
CONDITIONAL GRANTS only the interest used for scholarships.

DEFINITION: Conditional grants are funds ► Review Donor Communication: Examine ► Not restricted: A donor gives $10,000 with no
provided by donors with specific requirements or grant agreements, letters, emails, or other instructions or limitations; your organization may
conditions that must be met before the contributions correspondence for explicit instructions regarding use it for any purpose that supports your mission.
can be recognized. the use of funds.
BEST PRACTICES FOR MANAGING
KEY CRITERIA FOR ► Identify Donor-Imposed Restrictions: Only RESTRICTED GRANTS:
CONDITIONAL GRANTS: restrictions imposed by the donor qualify. Internal
designations by your board or management do not ► Track Restricted Funds Separately
make funds restricted for accounting purposes. Monitor Release of Restrictions
► Barriers to Entitlement: There must be substantive ►
donor-imposed barriers that your organization ► Assess Purpose and Timing: If the donor specifies ► Communicate with Donors
must overcome before you are entitled to the funds. a particular use or a period, the contribution is
restricted. ► Educate Staff and Board
► Right of Reversion: The grant agreement must
specify that if the conditions are not met, the donor ► Check for Endowment Language: If the donor ► Maintain Strong Documentation
has the right to reclaim or redirect the funds. BEST PRACTICE: requires that the principal be maintained in
perpetuity and only the income used, this is a BEQUESTS
EXAMPLE: Your nonprofit receives a $50,000 Carefully review all grant agreements for language permanently restricted endowment.
grant contingent upon raising $50,000 in matching regarding conditions and rights of reversion. If you are ► Document Everything: Retain all written evidence DEFINITION: Bequests are contributions left to
funds within a year. Until you raise those matching unsure whether a grant is conditional or unconditional, of donor restrictions for audit and reporting your nonprofit through a donor’s will or estate plan.
funds, you have not met the barrier to entitlement, consult with your accounting advisors or auditors to purposes.
and the donor could potentially reclaim the grant if ensure proper classification and compliance. EXAMPLE: A supporter bequeaths a portion of
the condition is not satisfied. ► Consult Accounting Standards: Refer to relevant their estate to your organization.
RESTRICTED GRANTS accounting standards or consult your auditors.
ACCOUNTING TREATMENT: Record conditional ACCOUNTING TREATMENT: Recognize
grants as liabilities (unearned income) upon receipt of DEFINITION: Restricted grants are funds ACCOUNTING TREATMENT: Report restricted bequests as contributions when you have an
funds. Recognize as income only once the conditions provided by donors with specific limitations on grants as net assets with donor restrictions. enforceable right and the amount can be reliably
are met and the barriers to entitlement have been their use. These restrictions may be temporary (for Contributions are recognized when received, measured. If restricted, record as restricted net
overcome. a particular project or period) or permanent (such but net assets are reclassified as without donor assets until the restriction is fulfilled.
as endowments). restriction once the restriction is satisfied. (CONTINUED ON NEXT PAGE)

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