In the nonprofit world, you’ve likely heard terms like donation, promise to give, and contribution used interchangeably. But each term has a specific meaning—and understanding the differences is critical for accurate financial reporting and compliance.
Let’s break it down:
- A donation is an immediate, voluntary transfer of assets—such as online gifts, checks, or in-kind donations.
- A promise to give is a pledge to contribute assets in the future, not a transfer at the time of the agreement.
- A contribution is the umbrella term that includes both donations and promises to give.
But there’s one more layer to consider: conditional vs. unconditional contributions. Misclassifying these can significantly impact your financial statements and revenue recognition.
What Is a Conditional Contribution?
A conditional contribution occurs when a donor agrees to provide assets only if certain future events or outcomes take place. The “condition” is a barrier that must be overcome before the nonprofit is entitled to receive or retain the funds.
Properly identifying conditional contributions is essential for:
- Accurate revenue recognition
- Compliance with GAAP and FASB guidelines
- Transparent financial reporting
- Budget planning and cash flow management
- Honoring donor intent
Condition vs. Restriction: What’s the Difference?
This is where many nonprofits get tripped up. A restriction limits how or when the funds can be used—but does not prevent the transfer of assets. In contrast, a condition must be satisfied before the contribution is recognized, and the donor has a right to withdraw the funds if the condition is not met.
According to FASB, a donor-imposed condition includes two key elements:
- A barrier the nonprofit must overcome (e.g., performance goals, matching requirements).
- A right of release, meaning the donor can cancel or reduce the obligation if the condition isn’t met.
Examples to Clarify
- Conditional Example:
A corporation agrees to donate $10,000 only ifyour nonprofit serves 10,000 meals within the year. Until that goal is met, the gift is conditional. You’ll record revenue gradually as meals are served and the barrier is overcome. - Unconditional (Restricted) Example:
A foundation gives $25,000 to be used only for summer camp scholarships. This is a restriction, not a condition—the funds are yours upon receipt but must be used as directed. - Matching Gift Example:
If a donor promises to match every dollar raised by the community up to $5,000, their gift becomes unconditional only as funds are raised. If $3,000 is raised, the nonprofit can recognize $3,000 of matching revenue at that point.
How to Account for Conditional Contributions
Don’t record a conditional contribution as revenue until the condition has been substantially met or explicitly waived. This helps ensure your financials don’t reflect income that’s not guaranteed.
- Record revenue and receivables only after conditions are met.
- If conditions are met in stages, recognize revenue proportionally.
Example:
If a corporate sponsor agrees to donate $1 per meal served, up to $10,000, and your shelter serves 122 meals on the first day, you can recognize $122 in contribution revenue that day.
When conditions are met over time, track progress carefully so your financials stay current and accurate.
Final Thoughts
Misinterpreting a donor condition as a restriction—or vice versa—can lead to misstated revenues and compliance issues. When in doubt, review the terms of the gift agreement carefully, speak with the donor if needed, and consult with your CPA.
If you have questions about determining or accounting for conditional contributions, leave a comment below or feel free to reach out to me directly. I’m happy to help!
