On November 18, 2023, Daniel Figueredo, BPM Assurance Partner and Nonprofit Co-Leader, and Jonathan Bryson, Advisory Manager, hosted a webinar examining key concepts in nonprofit contribution accounting. Part of BPM’s Nonprofit Education Series, the webinar covered the different types of contributions and their accounting and presentation requirements.

Contribution types

Jonathan went over the difference between contributions and exchange transactions, explaining that contributions are voluntary and nonreciprocal and do not give the donor a right to future service or profit sharing. He went on to define some of the most common types of donations that nonprofits receive:

•  Cash
• Pledges
• In-kind contributions
• Forgiveness of loans or other liabilities

He discussed conditional gifts, which the recipient will receive only if certain conditions are met. These include, for example, matching funds to be released once a certain amount is raised or money for a building’s construction to be released after building permits are acquired.

Jonathan went on to discuss donor restrictions, in which the donor imposes restrictions of purpose, such as the restriction that a gift be used for a particular campaign rather than general administration; time, such as being used by a particular date; or perpetual. He also stressed the importance of respecting donor intent and communicating with donors to ensure that their gifts are used the way they wish.

Accounting requirements

With this background in place, Daniel explained how different types of contributions should be recorded — as revenue, an increase in assets or a decrease in liabilities. He briefly discussed how to record each of the following:

• Cash
• Pledge
• Release of liability
• Conditional gifts or promises to give
• Contributed services
• Contributed supplies/materials directly expensed
• Contributed capitalized goods

Among other items, Daniel explained how to record pledges based on the time value of money, determine the fair value of in-kind gifts, and record conditional gifts when the gift is received but the condition still needs to be met.

Financial presentation requirements

Daniel proceeded to describe how to present gifts on the Statements of Financial Position, the Statement of Activities and key disclosure requirements for contributions receivable. He made the point that readers of financial statements should be able to easily understand the potential cash equivalent of in-kind or conditional donations, considering the possibility that the nonprofit might have to pay for certain costs in the future.

Learn more

Nonprofit accounting focuses on accountability and stewardship of funds rather than profit maximization. It is important that accountants understand the variety of contribution types available so that they can record them appropriately and maintain transparency with donors, regulators, board members and the general public.

To learn more about nonprofit contribution accounting, watch a replay of Nonprofit Contribution Accounting: Your building blocks for success.