In June, 2018, the FASB published new accounting standards for contributions. As nonprofits receive the bulk of their support from donors, these new practices will affect them the most. The new non-profit tax planning rules will not only influence how contributions are represented on financial statements but also how a nonprofit's supporters will view the company's financial stability.
The FASB report, entitled, "Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made", covers the topic of the difference between contributions and exchanges. It also addresses the issue of how to record a conditional contribution. Nonprofits need to understand these new accounting standards to ascertain that bookkeeping entries, financial reporting and notes are in order.
Items That Are Important To Remember
- Timing - As Contributions and exchanges are reported differently, the accounting period may be different for each of them. Unconditional Contributions are acknowledged when they are received while exchanges require goods or services to be delivered before they are recorded.
- Classification - Once it is ruled as a contribution, if a gift is designated as restricted by the supporter, it should be categorized as such or a determination made if it is merely a barrier. The report does not give a definition of barrier but rather uses indicators. These indicators are: measurable barriers, limited recipient discretion as to the activity, and stipulations. Recipients may want to read the full report for a more comprehensive explanation. When it is deemed a barrier, the conditions must be met before the contribution can be recorded as revenue and expense.
- All revenue determinations must be complete before the recording is done.
Generally Excluded As Contributions
- Those transfers of assets that result in the purchase of goods or services
- A transfer of an asset made by a reporting entity such as an agent or trustee
- Transactions such as tax incentives, tax abatements or tax exemptions
- Cases where a transfer of assets is made based on an existing exchange. This could be such situations as Medicaid or Medicare plans or other government programs.
- A transfer made from a business to a government entity
- These exclusions are not definitive. Non-profit organizations should do their homework and consider the circumstances before ruling.
Navigating the new rulings is a slippery slope. Nonprofits, especially, should seek the advice and guidance of a professional CPA in any areas that are unclear or murky. The penalties are steep for disregarding these new accounting standards and far outweigh the cost of hiring someone to do the job. You have worked hard to get where you are so don't risk your investment of time and money. Chandler & Knowles CPAs are well informed about the updates to FASB nonprofit accounting standards and are ready to help. Call us today to make an appointment and "Make Life Less Taxing" : (817) 406-3917.