Promise to give definition
/What is a Promise to Give?
A promise to give is an agreement to give cash or other assets to a third party. The donor then has an obligation to complete the transaction, while the recipient has an expectation of receipt. There are two types of promise, which are the conditional and unconditional promise. The accounting for them is noted below.
Accounting for a Conditional Promise to Give
If a contributor makes a contribution that is a conditional promise to give, only recognize the asset when the underlying conditions have been substantially met. Depending on the circumstances, this may not occur for a substantial period of time, if ever.
Accounting for an Unconditional Promise to Give
If a donor makes a contribution that is an unconditional promise to give, you can recognize the contribution when received. This calls for sufficient verifiable documentation that the promise was both made and received. The promise should be legally enforceable. If a contributor is able to rescind the promise to give, do not recognize the asset being contributed.
Example of a Promise to Give
Newton Enterprises receives an offer from a contributor to pay $2 million for a new classroom building, but only if Newton can raise matching funds from other contributors within one year. Given the conditional nature of this offer, Newton cannot record the asset until the matching funds have been raised within the specified time period.
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Promises to Give vs. Intentions
Promises to give are written or verbal commitments by a donor to contribute a specific amount or asset to an organization in the future. These are legally enforceable and must be recorded by the recipient organization as contribution revenue when the promise is unconditional. Promises can be either unconditional (recognized immediately) or conditional (recognized only when conditions are substantially met).
Intentions to give, on the other hand, are expressions of interest or plans to make a donation but lack a binding commitment. These are not legally enforceable and are not recorded in the financial statements until the gift is actually received. While intentions may be important for planning or relationship building, they do not meet the accounting criteria for recognition. Thus, the distinction lies in legal enforceability and timing of recognition.