Not-for-profit revenue recognition

Revenue Recognition for Contributions

When a not-for-profit entity receives a contribution, it should recognize revenue when the contribution is received, and measure the amount of revenue at the fair value of the contribution. If there are restrictions imposed by the donor, this impacts how the contribution is classified, as either a change in:

  • Unrestricted net assets
  • Temporarily restricted net assets
  • Permanently restricted net assets

A restriction by a donor can impact the timing of revenue recognition, since it can only be revenue if the contribution is an unconditional transfer to the not-for-profit. Only after a conditional transfer becomes unconditional can it be recognized as revenue. If the circumstances of the transfer are unclear, assume that it is conditional until such time as the issue is resolved and properly documented.

Revenue Recognition for Promises to Give

When a contributor makes a promise to give in a future period, there is a time restriction associated with the contribution that will elapse through the passage of time. If these items are unconditional, you may recognize revenue at their net realizable value if the payment will be made within one year, or at the present value of estimated future cash flows if the payments will be on later dates. These donations are listed as temporarily restricted net assets. Do not recognize a promise to give as revenue until all associated conditions imposed by the donor have been met.

Revenue Recognition for Contributions Held

A contribution may be held by an intermediary, such as a trustee. If the beneficiary has an unconditional right to the cash flows associated with the contribution, then it can recognize revenue as soon as its right is established, and measures the amount at the present value of the expected cash flows. If the intermediary is interrelated with the beneficiary, then the recordation method by the beneficiary is similar to the equity method of accounting that is used for investments.

Revenue Recognition for Volunteer Services

There are situations where an entity can recognize the value of volunteer services. This is the case when the services create or improve upon a non-financial asset, such as a roof replacement. If so, recognize revenue in the amount of the value of the hours contributed or via the change in fair value of the altered asset.

Other services may only be recognized as revenue if all of the following criteria are met:

  • Special skills are required
  • The work is done by volunteers who have these skills
  • The services would otherwise have to be purchased