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March 2017

Is Your Revenue Contributed or Earned Income?

Not-for-profits face many challenges in recognizing revenue. Determining whether revenue is contributed or earned (also called an “exchange transaction”) is often clear cut. However, there are other times when the line to distinguish between the two is unclear because the revenue source has attributes of both contributed and earned revenue. 
Furthermore, when evaluating transactions that meet the definition of a contribution, there may be a variety of other considerations including whether a contribution is conditional, an agency transaction, or a promise to give, and if it is a promise to give, whether the promise is legally enforceable. These judgments often drive the decision on whether to record revenue at a point in time or over time. 
Confusion over these challenges may be compounded by the fact that not-for-profits are implementing FASB's new revenue recognition standard as well as a new FASB standard on not-for-profit financial reporting.
The following chart published by the AICPA, lists the key characteristics of contributions and exchange transactions.  It can serve as a guide when the lines separating contribution from exchange transactions are blurred. 
Contribution vs. exchange


Exchange transaction

Non-for-profit (NFP) states that it is soliciting a contribution.

NFP asserts that it is seeking resources in exchange for specified benefits.

Resource provider asserts that it is making a contribution to support the NFP’s programs.

Resource provider asserts that it is transferring resources in exchange for specified benefits.

Delivery method is at the discretion of the NFP.

Delivery method is specified by the resource provider.

Resource provider determines the amount of the payment.

Payment by the resource provider equals the value of the assets to be provided by the recipient NFP or the assets’ costs plus markup.

NFP is not penalized for nonperformance.

NFP is penalized for nonperformance.

Assets are to be delivered to individuals or organizations other than the resource provider.

Assets are to be delivered to the resource provider or to individuals and organizations closely connected to the resource provider.

Source:  AICPA Not-for-Profit Entities – Audit and Accounting Guide.

Five Top Concerns for Regulators

Changes in the way nonprofits operate alter the face of many discussions but a number of the underlying legal issues and compliance considerations seem to be perpetual. Internal operational issues are of great interest to regulators. Among them are five hot-button areas — everything from fundraising to finances to online activity.
Read the entire article Nonprofit Times, March 7, 2017
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