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Contribution or not? Nonprofits get clarification on donations


by Edward J. Straley

In June 2018, the Financial Accounting Standards Board culminated a four-year review with new rules for revenue recognition by nonprofits.

While the new standard, known as ASU 2018-08, did not substantially change the way that nonprofit organizations identify and report revenue, it did clarify the standard rules and provided better definitions for revenue recognitions.

In past practice, nonprofits struggled with existing guidance on characterizing grants and other contracts. Were they contributions or exchange transactions?

The clarification coordinates with FASB’s 2014 revenue recognition standard for for-profit entities. Now, nonprofits can follow specific language on distinguishing between contributions and exchange transactions and determining whether contributions are conditional.

The standard lays out the following three-step process for categorizing transactions. Each step allows recipient nonprofits to scrutinize donations and follow yes-or-no calculations toward correct classification.

Step 1: Determining contributions versus exchange transactions

A contribution is a non-reciprocal transaction. Exchange transactions are reciprocal — classic buy-sell instances, when money from one party purchases a product provided by the other.

Step 2: Determining conditional versus non-conditional

A non-conditional contribution, untethered by stipulations, is recognized immediately as revenue and can be classified as net assets either with or without donor restrictions (see Step 3). Conditional contributions come with a right of return/right of release meant to incentivize the nonprofit to, for instance, deliver a certain number of services or collect matching funds. These are accounted as liabilities and not recognized until those barriers of entitlement are met.

Step 3: Determining restricted versus non-restricted

This step applies to contributions determined to be non-conditional. A restricted contribution is tied to a specific use, such as a building purchase, or a period of time. Lacking such constraints, it is considered non-restricted.

The new standard also says that government grants – perhaps a certain amount provided for every instance of service delivery – are contributions with restrictions. They are no longer to be treated as exchange transactions.

Keep in mind that choosing among such terms as “grant,” “gift,” “donation,” or “contribution” is not a factor in these considerations. The revised standard asks only that contributions be classified as exchange/non-exchange, conditional/non-conditional, and restricted/non-restricted.

Effective dates

Although actual filings under ASU 2018-08 don’t have to occur until 2020, nonprofits should begin incorporating the new rules into their practices in early 2019. Applying the new categorizations internally will prevent the need to adjust when it’s time to file.

Naturally, there are additional details that address specific circumstances. For transitional guidance and further counsel, contact your CPA or a trusted financial advisor. Nonprofits that approach the new standard as an opportunity to clarify old questions about classifying contributions will find smooth sailing.

Edward J. Straley is a principal at Boyer & Ritter LLC and has over 30 years of experience providing accounting, auditing, tax and management consulting services to a variety of clients and industry groups. Contact Ed at 717-264-7456 or


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