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UNDERSTANDING CONTRIBUTION ACCOUNTING - CONTINUED UNDERSTANDING CONTRIBUTION ACCOUNTING - CONTINUED
TIME-RESTRICTED PLEDGES: EXAMPLES: ACCOUNTING TREATMENT: Recognize general
grants as unrestricted contributions when received.
EXAMPLES: A pledge to give $10,000 over five years is considered ► Restricted: A donor pledges $10,000 over five
time restricted because the donor has specified that the years for general support. The pledge is time EXAMPLE: A foundation awards $20,000 for
funds will be provided over a set period. The nonprofit restricted and released annually as payments are “general support”—your organization may use it
► Restricted: A will specifies that the bequest must is not entitled to the full amount immediately, and the received.
be used to fund a new building. donor’s intent is that the funds support the organization for any mission-related purpose.
► Unrestricted: A will leaves a sum to your over multiple years. ► Restricted (Purpose and Time): A donor pledges YOU MAY NEED HELP
$5,000 over three years for a literacy program. The
organization with no instructions; you may use it pledge is both purpose and time restricted, and
for any purpose. HOW TO RELEASE TIME-RESTRICTED Unfortunately, the accounting regulations are a
PLEDGES FROM RESTRICTION: funds are released as both the period passes and bit convoluted in that definitions of conditions and
PLEDGES the program expenses are incurred. restrictions can feel similar at times. Other concepts like
► When the pledge is made, the full amount is recorded Unrestricted: A donor pledges $2,000 with no
as receivable and as restricted contributions. ► perpetual restrictions, endowments, and discounting
DEFINITION: Pledges are promises made by restrictions and pays the full amount immediately; pledges can become difficult to interpret and implement.
donors to contribute a specific amount in the future. ► Each year, as the receivable comes due (for example, your organization may use it as needed. If you have questions about classifying or reporting your
$2,000 per year), the corresponding portion of the contributions or need help setting up your accounting
EXAMPLE: During a campaign, a donor pledges pledge is released from restriction and reclassified GENERAL GRANTS systems to track restricted and unrestricted funds, our
$10,000 to be paid over five years. as unrestricted net assets. team is here to help. Accurate financial reporting is
DEFINITION: General grants are funds provided not just a compliance requirement—it is a key part of
ACCOUNTING TREATMENT: Record ► The release from restriction should match the timing without specific restrictions, allowing your building trust with your donors and stakeholders. With
unconditional pledges as receivables and of the donor’s payments or the period specified in nonprofit to allocate the money as needed. care and guidance, you can ensure that you’re on the
contributions at fair value when made. Conditional the pledge agreement. right track.
pledges are recognized when conditions are met. EXAMPLE: A foundation provides a grant for
► If the donor pays ahead of schedule or in a lump
sum, the restriction is released according to the general operating support.
donor’s instructions or the original period, unless MAHNAZ CAVALLUZZI, CPA
the donor explicitly allows immediate use. PARTNER
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