Not-for-profit organizations (NFPs) can find it difficult to differentiate a promise to give (often called a pledge receivable) from an intention to give. An intention to give typically does not have written evidence and, even if it is in writing, it usually contains words such as “intend”, “plan”, “hope”, or “may”. An intention to give is not as certain as a promise, and because of the higher degree of uncertainty, NFPs cannot record intentions to give in their books.

In contrast, a promise to give is usually a written or oral agreement to contribute cash or other assets to an organization. On rare occasion, a promise can be oral. Regardless of whether the promise is made in conversation or in writing, it is very important to document basic information about the donor and the promise. Such information includes the donor contact information, date the promise was made, description of the gift, amount or value, and any donor-imposed restrictions, if applicable. The key difference between an intention to give and a promise to give is legal enforceability.

Once the NFP determines that the offer is a promise and not an intention to give, the NFP needs to determine if the promise is unconditional or conditional. A promise to give is unconditional if there are no donor stipulations tied to the receipt of the gift. The receipt of an unconditional gift depends only on the passage of time or the organization’s demand for payment.  In contrast, a conditional promise is one that depends on the occurrence of a specified future and uncertain event to bind the donors. A conditional promise may include words such as “if” or “provided that.” Some examples indicating a conditional promise:

1)  Specified outcomes must occur for the donation to be received

2)  There is an explicit matching requirement

3)  There is a requirement that amounts not expended by a certain point in time must be returned to the donor

4)  Neither the timing nor the amount of the promise can be clearly determined in advance of receiving the payment

The accounting treatment for unconditional promises to give and conditional promises to give is different. Unconditional promises to give are recorded as revenue and receivables when the NFP receives the pledge, and has sufficient evidence in the form of verifiable documentation that a promise was made and received. Conditional promises to give are recorded as revenue and receivables when the conditions on which they depend are substantially met or explicitly waived by the donor. Until that time, the conditional pledge would be disclosed in the notes to the financial statements (if significant), but not reflected in the accounting records.

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