Deciding between a conditional or unconditional contribution

The latest view on not-for-profit accounting issues

When a nonprofit organization receives a contribution, they must determine if the contribution is a conditional or unconditional contribution.

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An unconditional contribution is when a donor contributes to a nonprofit with no conditions or barriers for receiving the contribution. If the contribution is unconditional and also without donor restrictions, the organization may use the contribution as they see best. If the contribution is unconditional but does include donor restrictions, then the organization must use the contribution for the restricted purposes.

A conditional contribution is when a donor promises to contribute an asset (such as cash) to an organization with a specification that a future event must occur or a specific barrier must be overcome for the organization to be entitled to the donation, and if that barrier is not overcome, the funds would need to be returned as the organization would not have an unconditional right to the donated asset.  A restriction is different from a condition. A condition specifies what an entity must achieve whereas a restriction stipulates how the resources must be used.

The donor is not bound to the promise until the future event occurs, therefore, the organization should not recognize the conditional promise to give and related income unless the condition is met or is explicitly waived by the donor. Should the condition not be met by the organization (or explicitly waived), the donor has the right of return of any transferred assets and is released from any obligation to transfer promised assets.

Some promises to give can be considered part conditional and part unconditional. If this occurs, the promises should be accounted for and treated separately.

Here are some common examples of barriers that must be overcome by an organization:

  • Requirement for specific programmatic outputs or outcomes using financial metrics
  • Occurrence of specified events
  • Performance obligations that depend on the actions of third parties (and are therefore beyond the nonprofit’s control)

If you have any questions on a conditional or unconditional contribution, contact your Henry+Horne advisor.

Laura Williams