Nonprofits often receive donor pledges and grant award letters for gifts to be received at a later date. These unconditional promises to give will be recorded as revenue with an offsetting receivable at the time of pledge/grant based on related stipulations.
An unconditional promise to give is a promised donation for which the donor has not placed any conditions. Because the nonprofit will receive these funds at a later date, the gift, at the time it is promised, is donor restricted by time as it has not yet been received. The revenue is considered to be released from restriction when the pledge is paid.
As payments are received on these gifts, an organization will apply the payment to the receivable as the revenue was captured at the time the promise was made.
The entries are as follows:
Promise to give (grants) received by the Organization: Debit receivable, credit revenue account
Payment made on the promise to give: Debit cash, credit receivable
If certain conditions must be met in order for an Organization to receive a pledge, this is considered a conditional pledge, and this is not recorded in the accounting software until the stipulated conditions have been met. At this point, the pledge is recorded as an unconditional promise to give.
Pledge Tracking
- A donor management software could also be a wise investment to more easily see what donor specific pledges have yet to be paid. Long outstanding pledges need to be reviewed for collectability. The nonprofit does not want to carry a receivable they do not expect to collect as it can distort the financial statements.
Making sure to keep up with pledges and grant receivables will allow management and the board of directors to clearly see the financial status of the Organization.
Please contact the Not-for-Profit Niche team at Gilliam Bell Moser LLP for further guidance.
