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Contributions v. Exchange Transactions

Posted Jan 26, 2016

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When a non-profit receives grants, awards, membership dues or sponsorships, the organization needs to make a determination to the treat the transaction as an exchange transaction (earned revenue) or a contribution. In an exchange transaction, each party receives and sacrifices something of approximately equal value; whereas in a contribution transaction, transfers of assets are nonreciprocal and the value, if any, returned to the resource providers are incidental to potential public benefits.

Below are some tips to help determine whether a transaction should be treated as a contribution or as an exchange transaction.

1. Intent in soliciting the assets
a. NPF asserts that it is soliciting the assets as a contribution – contribution.
b. NPF asserts that it is seeking resources in exchange for specified benefits – exchange transaction.

2. Resource provider’s expressed intent about the purpose of the assets to be provided by the recipient
a. Resource provider asserts that it is making a donation to support the NPF’s program – contribution.
b. Resource provider asserts that it is transferring resources in exchange for specified benefits – exchange transaction.

3. Method of delivery
a. The time or place of delivery of the assets to third-party recipients is at the discretion of the NPF – contribution.
b. The time or place of delivery of the assets to third-party recipients is at the discretion of the resource provider – exchange transaction.

4. Method of determining amount of payment
a. The resource provider determines the amount of the payment – contribution.
b. Amount contributed equals the value of the assets to be provided by the recipient nonprofit, or the assets’ cost plus markup – exchange transaction.

5. Penalties assessed if recipient fails to make timely delivery of assets
a. The NPF is not penalized for nonperformance – contribution.
b. The NPF is penalized for nonperformance – exchange transaction.

6. If the NPF delivers the assets
a. To individuals or organizations other than the resource providers – contribution.
b. To the resource providers or to some organizations closely connected to the resource providers – exchange transaction.

Contributions, including promises to give, are recognized as revenue in the period received and could be classified as temporarily or permanently restricted based on the donor’s intent. In exchange transactions revenue is recognized when goods/services have been delivered and, therefore, no restrictions on net assets are necessary.

  • Reference:AICPA Auditing and Accounting Guide Not-for-Profit Entities.




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