Non-Profit Bookkeeping: What to do with Promises to Give?Tax Professionals' Resource
January 31, 2013 — 1,881 views
A non-profit organization's annual pledge drive just finished. In all, they managed to raise more than $500,000, through a combination of corporate gifts, individual donations, and payroll deductions. This is great news for the non-profit and will really help them work on completing their mission. But the board wants to know: How do they keep track of the revenue?
What are Promises to Give?
Pledges are a long term promise to give money to a non-profit organization, such as a charity. When a person has specifically promised to give a non-profit a certain amount of money, either at a certain time, or on a certain schedule, it is known as an unconditional promise to give. It is reliant on nothing except for the passage of time for it to come in to being.
There are also conditional promises to give. In this instance, a person may say to a non-profit: I will give you $1,000, if you raise another $1,000 in matching donations. A corporation may say: we will donate $10,000 to your building project, when a contractor signs on to the project.
Securing the Promise
Non-profits should use written pledge forms that contain blanks for the amount and the time the gift will be given. Written forms reduce error and questions for both the non-profit and the donor. Non-profits should acknowledge the receipt of all pledges with a letter thanking the donor.
Recording the Promise as Revenue
Unconditional promises to give can be recorded as revenue upon receipt of the pledge from the donor, if the non-profit can reasonably be certain that the donor will follow through on the promise. Some factors to consider when relying upon a donor include whether or not the donor has followed through on past promises to give. The non-profit may also consider any known ability of the donor to pay the donation. It is more likely for a donor to complete a pledge if there is a fixed payment schedule, and if the pledge form uses words like "I promise."
Conditional promises to give cannot be recorded until the condition precedent is met. So if the non-profit needed to secure other donations, it can record the revenue once the other donations are received.
Promises to give should be recorded at fair market value of the time they are received.