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Accounting for Unconditional Promises to Give

Promises to give can be a hard topic to understand and accurately record. These types of transactions tend to be where most errors and misstatements occur during an audit, which is why having a good understanding of what a promise to give is and a process in place to identify promises to give is vital for accurate financial reporting.


What are promises to give?

Per General Accepted Accounting Principles, a promise to give must include:

    • The right of the recipient of the promise to expect that the promised assets will be transferred in the future.
    • The social, moral, and generally the legal obligation of the maker of the promise to make the asset transfer.

Essentially, a promise to give needs to be more than just an intention by the donor. It needs to more than just, “I plan to make a donation.” Promises to give can be oral or written; however, even if a promise to give is oral, there should still be documentation to support the promise, such as an email to the donor confirming the verbal discussion had about the promise.


What are the types of promises to give?

There are two types of promises to give: conditional and unconditional.

Conditional Promises to Give

To be considered conditional, there needs to be a barrier and right of return.

A barrier exists when there is:

    • A measurable performance which includes a specified level of service, number of units of output, and a specific outcome. Common examples of this include donations that stipulate that you have to raise a specific amount of funding from other sources in order to receive/keep the donation (also known as a matching gift) or donations requiring a certain amount of meals/clients to be served/assisted.
    • Limited discretion on the use of the funds. This is more than just a restriction, but rather specific requirements outlined in a cost guideline. A common example of this are donations that require you to spend funds in accordance with the Uniform Guidance or Department of Health Services Allowable Cost Policy Manual.
    • Stipulations related to the purpose of the agreement that have to be reported on. These stipulations should be specific and measurable and not just generic goals. For example, a stipulation would be a requirement to serve a certain number of meals to the homeless.

A barrier is more than just an administrative task; meaning, being required to submit a budget or performance report is not a barrier.

A right of return is simply a stipulation in the agreement that the donor can request that the donation is returned; typically, it is if the funds are not fully spent or a barrier not met

Unconditional Promises to Give

To be considered unconditional, there can be a barrier or right of return or neither; just not both.


When are promises to give recorded?

Conditional Promises to Give

Conditional promises to give are recorded when the barrier has been overcome. Applying each type of barrier:

    • Measurable performance barrier: the conditional promise to give that has a matching gift barrier would be recorded when the amount that was required to be matched is received from other funding sources.
    • Limited discretion barrier: the conditional promise to give would be recorded when the expenses that are allowable under the cost guidelines have been incurred.
    • Stipulations barrier: the conditional promise to give would be recorded when the specific stipulations (i.e. goals) outlined in the conditional promise to give agreement have been completed.

There are situations where a donor will provide the donation upfront, prior to the condition being met. In those situations, the amount should be recorded in a liability account called ‘refundable advance’ and once the conditions are met, the refundable advance is reduced and the amount is recognized as revenue.

Unconditional Promises to Give

Unconditional promises to give are recorded on the date the donation was awarded/promised. The entire donation should be recorded, including any future promised amounts as long as they are considered unconditional. For example, your organization received a donation with no barrier or right of return for a total of $200,000 and the donor will provide the first $100,000 in the current year and the rest of it will be provided next year. One the date the donation was promised, the entire $200,000 would be recorded as an unconditional promise to give and revenue. Then as the cash is received, the unconditional promise to give is reduced.

There are situations where the period of which the promise will be received that surpasses the upcoming year, which requires the promise to be discounted to the net present value of the donation. Due to the complexity of the calculation, it is not covered in this post.


What does all of that mean?

That was a lot of accounting jargon and things to consider, but each time you are faced with a potential promise to give, take the following steps:

  1. Is it a promise or an intent?

  2. If a promise, is it conditional or unconditional?

  3. If conditional, record as revenue when the conditions has been met.

  4. If unconditional, record the entire amount as revenue when awarded.

It is recommended that these types of transactions are tracked, especially if you are applying and receiving a significant number of grants and multi-year awards. It could be as simple as using a spreadsheet and making sure to document the award date, timing of payments to be received, conditions, if any, and when it was or will be recorded as revenue. This should be completed by both the accounting and development departments to ensure that there are no missing promises to give. (Download our Post-Grant Award Checklist here)

Now that recording promises to give is as clear as mud, if you do have any questions, we are here to help! Reach out to your Wegner CPAs Assurance Advisor for guidance.

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