FASB No. 116 for Nonprofits

In order for a nonprofit organization to maintain good standing with the IRS and the community, it must follow the rules governing the accounting and reporting for nonprofits.  The FASB is the entity that sets these standards. The state or IRS enforce the rules they establish.

No. 116: Accounting for Contributions Received and Made

Because most nonprofits rely heavily on donations to fund their programs and activities, following these guidelines will assist nonprofit tracking and accounting.

  • Contributions received are considered revenues in the period they are received. They are to be recorded at their fair market value. It is important to record donations within the time frame they are received.
  • Contributions made are considered expenses in the period they are made at their fair market value. This is the flip side of the above regulation. This applies to donations given by the nonprofit to someone else.
  • Unconditional promises to give should be recognized as revenues in the period received at their fair market values. These are donations received that have no conditions on them as to how and when they should be used.
  • Conditional promises to give, whether received or made, should be recognized when they become unconditional. A donation received with a conditional promise to contribute when certain requirements set by the donor are met are recorded as refundable advance (liability). When the requirements are met and the gift becomes unconditional, then it is to be recorded as revenue in the period it becomes unconditional at its fair market value.

Three Types of Net Assets

Donations need to be classified as one of these three when the nonprofit’s financial statements are completed.

  • Permanently restricted net assets
  • Temporarily restricted net assets
  • Unrestricted net assets

Under No. 116, nonprofits are also required to track contributions of volunteer time. Hours must be recorded for volunteers whose services create or enhance nonfinancial assets like the renovation of a building.

In another case, the services provided by volunteers that require specialized skills that would typically need to be purchased if not provided as a donation must be accounted. Determine the fair market value for services like these and record them on the financial statements.