Promises.
Promises.
Promises.
What a comfortable word that indicates dedication and intention. When supporters pledge to contribute to your organization, they are showing that they care about your cause and want to help you reach your goals. Pledges pump financial assistance and are the heart of your organization. These necessary commitments from your advocates provide the constant flow of funds that give life to your cause. These promises are an integral part of your accounting records.
There are special requirements for your organization to label a gift as a pledge. Accountants use a few specific terms to classify a pledge. They identify it as a promise to give or as an intention to give.
To be eligible for revenue recognition, the pledge needs to be evaluated as to whether it is a promise to give, or an intention to give. A promise is a firm commitment between a donor and your organization in which the benefactor promises to give at some point in the future. In contrast, an intention to give is contingent on circumstances, and the donor can actually withdraw his intention..
Besides identifying the type of pledge, you need to decide the circumstance of the pledge. Here you have two kinds of circumstances. The "promise" is the unconditional pledge where a donor staunchly commits without any hesitation. Your organization can record these unlimited pledges at the time you receive their promise.
The "intention" variety of pledge is the conditional. This pledge carries constraints that can affect it at some future time. Because of the uncertainty of the actual commitment of this pledge, it is a conditional pledge and the donor is not legally bound to the pledge until stipulations are met. Your organization cannot count it as revenue until all restrictions are lifted.
Your organization depends on these pledges to keep funds pumping. When your accountant prepares your records for pledges, he must determine how long it will take for your organization to realize the full amount of the pledge. The accountant will record a pledge that will be received in its entirety within one year in that year’s financial reports. When a pledge funds over a period of five years or more, you must consider future cash worth at the value of when the pledge was recorded.
Knowing the differences between pledges and their conditions keeps your financial data accurate and within regulations. Welcome all pledges and keep the lifeblood pumping.
If you have any questions about differences between the types of pledges and how to best identify and record them, give us a call. If you have questions about any other not-for-profit industry topics, we would love to hear from you. You can contact our not-for-profit team leader with any non-profit accounting questions at trent@tbfosteraccounting.com.