Classifying Contributions

Contributions are received from multiple sources and may have unrestricted and restricted designations. The designation relates to the donor’s intent for the funds. If the donor does not specify how or when the funds are to be used, the contribution is classified as unrestricted support. These types of contributions ultimately increases unrestricted net assets.

If the donor stipulates that the funds are to be spent on a particular item/activity or within a particular period of time, then the contribution is temporarily restricted. If the contribution is never to be spent, as in the case of certain endowments, the contribution is permanently restricted, thus increasing permanently restricted net assets. These permanently restricted net assets generate investment income that can be spent, but the investment income may have donor restrictions to consider as well.

Recording a contribution increases cash and increases revenue. Therefore the asset account is debited and the revenue account is credited. The revenues are classified based on the donor’s intent. When the donor’s restriction has been met then the funds are released and classified as unrestricted support.

There are two different methods utilized in recording temporarily restricted revenues. The first method allows temporarily restricted contributions to be recorded as unrestricted support if the purpose or timing is met in the same year as the receipt.  The second method requires the full amount of temporarily restricted contributions to be recorded as restricted support when received and then released as the restriction has been met.

For more information on recording and classifying contributions, see FAS 116, Accounting for Contributions Received and Contributions Made.