Grant-making and grant-receiving is commonplace in the nonprofit industry. Certain grants can have conditions attached to them which would impact their accounting treatment. Let’s examine the two types of grants and the related accounting from the Donor’s perspective as well as the Donee.
Conditional grants are defined as a Donor’s promise-to-contribute assets to a nonprofit organization upon satisfaction of a specified future or uncertain event. An example of a common conditional grant is a matching grant. A matching grant occurs when the Donor approves and communicates a grant to the Donee dependent upon the Donee raising a specified amount of funds from others. For example, a Donor approves a matching grant of $10,000 to be paid to the Donee if and when the Donee raises $10,000 of additional funding from other sources.
Conditional grants should be recognized in the financial statements when the conditions on which they depend are substantially met. In the example noted above, the Donee satisfied the conditions on the matching grant at the point when the Donee raised $10,000 of additional funding. Upon satisfaction of the matching grant, the Donee can recognize the grant in the financial statements. If the conditions on the grants are met prior to year-end and cash was not exchanged until after year-end, the grant should be reported as a payable on the Donor’s financial statements and as a receivable on the Donee’s financial statements. If the condition on the grant is not met prior to year-end, no amounts should be recorded in the Donor or Donee’s financial statements, however reporting as a footnote disclosure may be necessary.
Unconditional grants are defined as a Donor’s promise-to-contribute assets to a nonprofit organization without further action or additional circumstances. For example, an outright promise to transfer cash that is not dependent upon a future outcome or event would be considered an unconditional grant. A Donor may promise to give a nonprofit organization a multi-year grant, (i.e. a grant of assets or funds over multiple years). A multi-year grant with no stipulated conditions is deemed unconditional even if funds are to be received in future years.
Unconditional grants should be recognized in the financial statements when the grant is approved and communicated to the Donee. In the event that an unconditional multi-year grant is promised and communicated to the Donee, the Donor and Donee must recognize the entire amount on the date of the grant as a payable or receivable, respectively.
For additional support or general questions about accounting for and differentiating between conditional and unconditional grants, feel free to contact Kristi Yanover at 858-558-9200.