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Accurate Revenue Reporting Consideration Topics for Nonprofits

By: Jason Terwilliger, CPA, CIA, Manager

Communication is a cornerstone of any effective team of individuals working together to achieve common goals. This is especially true for the accounting and development departments in nonprofit organizations. When it comes to accurately reporting on an organization’s financial position, both accounting and development have important roles.

Development staff work hard on behalf of donor stewardship, and the accounting staff must ensure that contributions and grants are reported appropriately in the financial statements. Accounting standards can be quite complex and good communication between all parties involved is necessary for getting it right.

The following areas are especially important for consideration:

1. Awarded funds not yet received. For those nonprofits that prepare financial statements on an accrual basis, simply not receiving an awarded grant or contribution before the end of the year doesn’t necessarily mean that it isn’t still counted as contribution revenue within that year. Are there grant agreements that have been received for future funding? Has a donor indicated that they plan to give the organization a gift, but haven’t sent it yet? Was the conversation verbal or written? Are any restrictions or conditions being placed on expected gifts by the donor? Are there gifts that will be received over several years rather than in one lump sum? These are all noteworthy details when determining proper accounting treatment.

2. Multi-year pledges. In situations when gifts are expected to be received over more than one year, the revenue that is reported may not always match the time that cash comes in the door. Recording donor pledges appropriately is based on the nature of the promise to give, the collectability and timeliness of the expected payments, and the amounts that will be received in each subsequent year.

3. Trusts. This is an area that can be easily overlooked or misunderstood. Often part of planned giving, accounting treatment can vary depending on the structure of the trust. Accounting should be aware of any trusts that name the organization as a beneficiary in any way so that proper recognition can be made within the financial statements.

4. Planned giving. Many nonprofits are educating donors about the benefits of planned giving in support of their missions. In many cases, planned gifts are only notations in the file until they become effective; however, the timing of revenue recognition can sometimes be ambiguous leading up to distribution. Accounting departments should be involved during the settlement of an estate to ensure gifts are recorded in the appropriate financial periods and at the accurate amounts.

5. Reconciliation. Normally, separate databases are used in development from those used in accounting to address the various needs of each department. Both databases contain information that have an impact on the financial position of the organization and should be reconciled on a regular basis to ensure they are in agreement. Generally, the end of the fiscal year is a good time for reconciliation, but to maintain good communication and transparency between departments, reconciling more often is recommended.

As accounting departments are hard at work closing the books for nonprofits with fiscal years ending December 31, now is a good time to revisit these key topics. The financial statements are a primary way of depicting an organization’s story; therefore, starting with good communication inside the organization will result in good communication with supporters outside the organization as year-end financial information is shared. If you have questions, please contact a Blue and Co advisor.

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