Mr. Donor tells your gift officer he intends to leave your organization in his will–great! However you won’t be able to recognize this revenue yet, not even as a pledge. A pledge, or promise to give, is an agreement between a donor and the organization where the donor promises to contribute cash or other assets to the organization. While that sounds simple enough, it is important to understand there are some basic criteria a pledge must meet for the Accounting department to record the pledge as revenue. The two basic criteria are ensuring that (1) the donor has made a firm commitment and (2) the pledge is unconditional.
For endowments, pledges receivable — although intended for endowment in perpetuity — are NOT considered contributions to an endowment fund until payment is realized.
For a pledge to be realized and revenue recognized, a pledge representing an unconditional promise to pay must be received and all eligibility requirements, including time requirements, must be met. Pledges for permanent endowments do not meet eligibility requirements as defined by Governmental Accounting Standards and are not recorded as assets until the related payments are received.
So when do you record revenue? Look for language like:
- I promise
- I (we) commit
- We pledge and agree to pay
When NOT to record revenue:
- I intend to give
- Subject to availability
- We will endeavor to give
- This is not a binding pledge
- We may revise or cancel at any time
It is good practice to document gifts in writing, obtain clear understanding of donor intent and have clear and consistent wording on all pledges and donor agreements such as:
- Payment timing
- Restrictions (if any)
- Irrevocable? (regarding planned gifts)
- Promise rather than “intent”
- Donor’s signature
For additional guidance see ASC 958-605-25.
What’s the most unique pledge your organization has received?