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.

The majority of not-for-profit organization revenue is generated from donor contributions.  But donors also contribute services, property and/or equipment and volunteer hours.  How are these donations recognized in the financial statements?

If the services require a specialized skill and you would have typically paid for them had they not been donated, then you must recognize them as contributions at the price and/or rate of the amount received.  You may ask the service provider to provide an estimate of the fair value of the services, in order to substantiate the estimated value.

Perhaps your organization received several laptops from a local business. These materials should be reflected as contributions at their estimated fair (market) values on the date you received them.  A way of establishing a record of ownership and value of the property is to ask the donor for documentation when the property is provided.

It is very common for individuals to donate their time assisting with fundraising efforts or program services.  It can be difficult to find a basis for these donated services and these services may not require specialized skills.  The contribution is valid, however not recognized in the financial statements, but may be disclosed in the footnotes.

Even donors to nonprofit organizations are looking for a return on their investments. The return is in the form of the contribution being used for a specified purpose within the organization’s scope of activities. A donor may require that the contribution not be used until a project has reached a predetermined goal or threshold. These donor restrictions require nonprofits to segregate these contributions as temporarily restricted assets until the specified conditions have been met. When the restrictions are met in the same year as the donation, the revenue is recorded as unrestricted support. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.

If material, the components of temporarily restricted net assets and the amounts released are disclosed in the footnotes of the financial statements.

Authored by Tishia Jordan