Conditional promises to give are recognized only when the conditions are satisfied. Therefore, no revenue or receivable should be recognized at the time the promise is received. If any assets are received prior to the conditions being met, the assets should be accounted for as a refundable advance (liability). Once the condition is met, the liability is removed and revenue is recognized.

Additional disclosures must be made regarding promises to give. When disclosing conditional promises to give, you should disclose the following:

1. the total of the amounts promised; and
2. a description and amount for each group of promises having similar characteristics, such as promises conditioned on establishing new programs, completing a new building, or raising matching gifts by a specified date.

Summary of Unconditional vs. Conditional Promises to Give

 The following are examples of promises to give:

 Unconditional or Conditional?

Conditional Disclosure 1:

A trustee has agreed to match contributions to the Entity’s endowment funds on a one-for-two basis until the total reaches $5,000,000. In addition, a contributor has pledged to contribute $250,000, conditional upon proper matching with a grant.

Conditional Disclosure 2:

During 20X7, the Entity received restricted grants totaling $50,000 that contained donor conditions (primarily matching funds requirements). Since these grants represent conditional promises to give, they are not recorded as contribution revenue until donor conditions are met. Funds received from the donor in advance of the conditions being met totaled $20,000; are recorded as refundable advances; and will subsequently be recognized as contribution revenue when donor conditions are met.

For more information see “Unconditional Promises to Give” for general information regarding promises to give.

Promises to give can be unconditional or conditional. Unconditional promises to give are exactly that: unconditional (no strings attached). Once received, they can be used toward the ongoing operations or mission of the not-for-profit organization. 

The timing of recognition of contribution revenue or receivable depends upon the promise to give being unconditional or conditional. Unconditional promises to give are recognized when received, even if the donor restricts the promised contribution for use in a future period and even if the promise will not be paid until a future period. If the promise to give is restricted for use in a future period or won’t be paid until a future period, it should be reported as restricted support, either temporary or permanent. 

Contributions received should be measured at their fair values.  If the promise is expected to be collected in less than a year, it is measured at net realizable value, which in most cases would be the face value net of any estimated uncollectible amount. If the promise is expected to be collected after one year, the fair value should be based on future cash receipts, discounted at a rate “commensurate with the risks involved.”  Basically, the discount rate should be based on the same criteria that would be used for trade receivables.  The entity should consider the following factors:

1. when the receivable is expected to be collected;
2. the creditworthiness of the other parties;
3. the entity’s past collection experience;
4. the entity’s policies concerning the enforcement of promises to give;
5. expectations about possible variations in the amount or timing of the cash flows; and
6. other factors concerning the receivable’s collectibility.

Additional disclosures must be made regarding promises to give. When disclosing unconditional promises to give, you should disclose the following:

1. the amount of promises receivable in less than one year, in one to five years, and in more than five years; and
2. the amount of the allowance for uncollectible promises receivable.

 Examples

 Unconditional Disclosure 1:

Unconditional promises to give are recorded as receivables and revenue when received. The Entity distinguishes between contributions received for each net asset category in accordance with donor-imposed restrictions. Pledges are recorded after being discounted to the anticipated net present value of the future cash flows.

              Pledges are expected to be realized in the following periods:

                                                                                                  20X1                20X0     

                    In one year or less                                                 $  1,438,547     $   1,313,217
                    Between one year and five years                                 1,970,255          1,780,764
                                                                                                 3,408,802          3,093,981
                    Less:
                        Allowance for uncollectible pledges                            (969,036)          (717,538)
                        Discount, at 6%                                                     (387,800)          (324,867)
                                                                                             $  2,051,966     $   2,051,576

Unconditional Disclosure 2:

The pledges receivable consist of operating and capital project fund-raising campaigns. At June 30, 20X1, all pledges receivable are expected to be collected during the next year. Management has determined that the pledges receivable are fully collectible; therefore, no allowance for uncollectible accounts are considered necessary at June 30, 20X1.

For more information about conditional promises to give, watch for my next post.

To be classified as a current asset, cash and cash equivalents must be readily available to pay current obligations and free from any contractual restrictions. Cash that is restricted should be segregated from the general cash and cash equivalents category. Cash is considered to be restricted if it is designated (by donor or the Board of Directors) to be used for a specific purpose. For example, if you have entered into a capital campaign to raise money for a new building, any cash received for that purpose would be restricted. This means that this cash can only be spent on costs incurred for the new building and cannot be spent for any other purpose. 

The restricted cash is classified on the balance sheet either as a current asset or a noncurrent asset – depending on the relationship to the asset for which the funds are restricted. If the cash is restricted for property and equipment, the restricted portion is classified as a long-term asset.

Restrictions on cash must also be disclosed in the notes to the financial statements. You must disclose the amount of restricted cash and the purpose for which it is restricted. The following example shows the balance sheet presentation and the disclosure for cash restricted for current and noncurrent purposes.

At December 31, 2008, the Company has $1,500,000 of restricted cash of which $900,000 is classified as a noncurrent asset. The restricted cash serves as collateral for an irrevocable standby letter of credit that provides financial assurance that the Company will fulfill its obligations with respect to a litigation settlement discussed in Note [X]. The cash is held in custody by the issuing bank, is restricted as to withdrawal or use, and is currently invested in money market funds. Income from these investments is paid to the Company. The current portion of restricted cash of $600,000 represents the amount of current liability for amounts billed to the Company for certain repairs agreed to be made under the settlement agreement.

1. Your Attitude is a Choice.  You can’t always control what happens to you (or what your client/coworker does or doesn’t do), but you can control how you react to those circumstances.

2.  Your Attitude Determines Your Actions.  Your attitude drives your behavior.  Your body language is a reflection of your attitude.

3.  Your People Are a Mirror of Your Attitude.  A leader creates the environment that determines people’s moods at the office and their mood, in turn, affects their productivity and level of engagement.

4.  Maintaining a Good Attitude is Easier Than Regaining One.

Need help in readjusting your attutide?  If you need an attitude “pick-me-up,” try the following: 

1.  Feed yourself the right “food.”  Try to think positively and surround yourself with positive reinforcement.

2.  Achieve a goal every day.  Set an achievable goal each day so that you feel that you are making progress.  This will help you to feel more positive.

3.  Write it on your wall.  Keep reminders of goals you’ve accomplished or things that inspire you to stay positive.  These constant reminders will help you to maintain a positive attitude.

For more information on leadership qualities read The 21 Indispensable Qualities of a Leader by John Maxwell.

• The articles of incorporation must limit the corporation’s purposes to one or more of the exempt purposes set forth in IRC section 501(c)(3). If your exempt purpose has changed since inception of the corporation, your tax-exempt status could be at risk. In addition, the corporation must pay taxes on income from activities unrelated to its exempt purpose and cannot make substantial profits from these unrelated activities.

• Upon dissolution, the corporation’s assets must be distributed to another charitable corporation.

• The corporation cannot contribute to or participate in political campaigns directly or indirectly. The corporation also cannot endorse or oppose (either verbally or in writing) a particular candidate.

• The corporation can engage in only limited lobbying activities. Excessive lobbying is prohibited.

• The corporation cannot be organized to financially benefit its members, officers, or directors. A dividend may not be paid to, and no part of the income of the corporation may be distributed to the corporation’s members, directors, or officers. However, reasonable salaries and expense reimbursements are permitted.

For additional information, go to http://www.irs.gov or contact us.

These limits will be in effect until December 31, 2009. On January 1, 2010, the coverage limits will return to $100,000 for all accounts except IRAs and Certain Other Retirement Accounts. These accounts will continue to be covered at $250,000.

To calculate your FDIC insurance coverage, go to www.fdic.gov/edie.

For other information, go to www.fdic.gov or contact us at www.rcosolutions.com.