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.