Contributions

Contributions are the revenue classification a nonprofit organization uses to account for donations it receives, covering cash gifts, donated securities, donated property, volunteer services that meet specific recognition criteria, and unconditional promises to give assets at a future date. The same term also describes an expense category when a nonprofit itself makes a grant or donation to another nonprofit organization, in which case contributions appear as an outflow rather than inflow.

An unconditional contribution, one with no barrier that must be overcome before the nonprofit is entitled to keep it, is recognized as revenue immediately when the promise is made, even if the cash itself has not yet been received — this is why a multi-year pledge from a donor can show up as revenue in the year it is pledged rather than spread across the years the cash actually arrives. A conditional contribution, by contrast, one that depends on the nonprofit achieving a specified outcome, such as raising matching funds or completing a particular program milestone, is not recognized as revenue until that condition is actually met, since until then the nonprofit has not yet earned an unconditional right to the money.

A donor can attach a restriction to a gift, specifying that it be used only for a particular purpose or only after a particular date, in which case the contribution is recorded as a donor-imposed restriction rather than as an unrestricted gift the nonprofit can spend freely. Under current nonprofit accounting standards, contributions are sorted into net assets with donor restrictions or net assets without donor restrictions, a simpler two-category system that replaced the older three-tier unrestricted, temporarily restricted, and permanently restricted classification.

Not every payment a nonprofit receives is a contribution; if a donor receives something of roughly equal value in return, such as a ticket to a gala dinner or membership benefits, the transaction is at least partly an exchange transaction rather than a pure contribution, and the portion equal to the value received must be accounted for separately from the charitable portion. Nonprofits that sell tickets to fundraising events routinely split the payment between a contribution component, equal to the amount paid above the fair value of the benefit received, and an exchange component, equal to that fair value itself.

Donors, grantmakers, and watchdog organizations that evaluate a nonprofit's financial stability look closely at the composition and trend of its contribution revenue, since a nonprofit heavily dependent on a small number of large, restricted gifts faces very different risks than one with a broad, diversified, largely unrestricted donor base. The distinction between unconditional and conditional contributions, and between restricted and unrestricted ones, also directly affects how much of a nonprofit's reported net assets are actually available for it to spend on general operations at any given time, which is one of the first things a board or finance committee reviewing the organization's statement of financial position checks.