Conditional vs. Unconditional Promises to Give – What is the Difference?
By Donna Mayes | Trackback URL Add comments
As a former employee of a not-for-profit organization, we always got excited when we learned of a pledge (also known as a promise to give) from a generous donor. What can be difficult to understand is what you do with that information. There are two kinds of pledges and the treatment of each is different.
1. Unconditional promises to give are statements by a donor of their intent to make a contribution of some kind at a future period. (For example, the ABC Foundation informs you that they have voted at their last Board meeting to give your organization $10,000 in January.)
2. Conditional promises to give are pledges by a donor that are “conditioned” upon some other event (other than the passage of time) occurring. (Some examples are: 1). A donor states that he will give you $5,000 for your capital campaign if a contract with a builder has been signed. 2). A foundation will contribute $100,000 if a new program is implemented. 3). A corporation will donate $1,000 if other corporations in your community do the same.)
Remember: Conditional pledges require some other action to occur.
So what is the different accounting treatment?
1. Unconditional pledges are recorded as revenue (which is temporarily restricted – see blog on this topic) when the not-for-profit organization receives the pledge (written or verbal).
2. Conditional pledges are recorded as revenue when the condition has been met. Until that time, the conditional pledge would be disclosed in the notes to the financial statements (if significant), but not reflected in the accounting records. [For example, you learn on December 1, 2008 that a donor is going to contribute $1 million for your organization to begin an endowment if you are able to establish a location in another town by December 1, 2009. In the financial statements ending December 31, 2008, this information would be disclosed in the footnotes. On March 31, 2009 the location is opened, and at that time you would recognize the pledge and the associated revenue of $1 million even if payment has not actually occurred.]
Pledge information can be conveyed to you verbally or in writing. However, we suggest that all significant pledges be obtained from the donor in writing stipulating any restrictions, date payment is to be expected, any conditional information, etc. This practice helps to reduce any confusion or errors.
If the donor does not send this written information, then we suggest that you write the donor an acknowledgement of their pledge and outline the verbal specifications. Ask the donor to sign a copy of the letter and return it to you.
Sometimes it can be unclear when the condition of the pledge has been met and should be recorded in your accounting records. If you have questions regarding this recognition, give us a call.
Categories: Assets, Contributions, Definitions, Financial Reporting, Fundraising, Gov't/United Way Agencies, Private Schools and Universities, Religious OrganizationsTags: Contributions, contributions receivable, donations, donors, pledges, promises to give
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These articles bring some clarity to what has being bothering me on how to treat unconditional promise to give. In the past, my organization had completely eliminated reporting it as a revenue in its statement of Activities because they have never had any success in collecting them. I have advised them to do so henceforth but annually write off those uncollectible portion base on collection history and factors you explained. As well as disclose it in the Balance Sheet. Based on what you have explained, does when the Not-profit recieved the pledge, mean the date the the donor made the pledge or the date the amount was collected? This question has being the main problem for us.
These articles bring some clarity to what has being bothering me on how to treat unconditional promise to give. In the past, my organization had completely eliminated reporting it as a revenue in its statement of Activities because they have never had any success in collecting them. I have advised them to do so henceforth but annually write off those uncollectible portion base on collection history and factors you explained. As well as disclose it in the Balance Sheet. Based on what you have explained, does when the Not-profit recieved the pledge, mean the date the the donor made the pledge or the date the amount was collected? This question has being the main problem for us
Would a donee receiving contributions by donors through the united way record the pledge at the time made or as the money is received from the united way?
There are really two schools of thought on this. Some organizations record this as a pledge when they learn what their allocation amount will be from United Way. However, most agreements with United Way state that the allocation amount is contingent upon them receiving the level of expected funding from their fundraising campaign. Because of this caveat, these contributions are more conditional, and we usually take the position that they shouldn’t be recorded until received. (GAAP states that conditional gifts are not recorded until the condition is substantially met.) I would suggest that you speak with your auditors about this subject, adopt a policy and then adhere to the policy.
Thanks for your response. “When the not-profit received the pledge” means when the NPO learned of the donor’s intent to make a contribution, not when the NPO receives the gift. The notification usually comes in the form of a letter from the donor or as a pledge card (especially if you have a capital campaign in process.)