Update 5/22/24: We’ve updated and expanded upon this post. Follow this link to read Accounting for Unconditional Promises to Give.
Many non-profit organizations struggle determining whether the communication they received from a donor represents a conditional promise to give, an unconditional promise to give, or an intention to give. This article will help to shed some light on a complicated subject.
Promises to give, which are commonly referred to as pledges, represent an agreement for a donor to contribute cash or other assets to an organization.
Promises to give recorded by an organization should be evidenced by:
- Donor’s name, address, and phone number
- Amount of the promise and type of asset to be received
- Date the promise was made and when the asset is to be received
- Any conditions or restrictions placed on the contributed assets
Promises to give can be either oral or written.
However, when an oral promise to give is made, care should be taken to follow up with the donor in some form of written communication to provide documentary evidence of the promise.
Promises to give can also be considered either unconditional or conditional.
An unconditional promise is only restricted by the passage of time necessary for the donor to make the gift. With an unconditional promise, the donor has no right of return on the asset after it has been pledged to the organization. Unconditional promises to give should be recorded immediately in the organization’s financial statements as a receivable.
A conditional promise to give usually is dependent on the occurrence of some future event before the promisor is bound and the promise becomes unconditional. Conditional promises to give also exist when an asset is given, but must be returned if a future event does not happen. In this case an asset and a liability would be recorded until the future event happens and the donor no longer has a right of return on the asset. Conditional promises to give are not recorded as revenue in the organization’s financial statements, but are sometimes disclosed in the footnotes to the financial statements.
If a promise contains unclear or vague stipulations that are not evident of an unconditional promise to give, it should be treated as a conditional promise to give. For example if a company pledges $10,000 depending upon the results of their operations at year end, the promise would be considered conditional.
FASB ASC 9580605-25-12 states that conditional promises to give should be considered unconditional if the chance of the future event creating the condition not happening is “remote,” or negligible. For example, a company makes a promise contingent on the organization sending them a copy of their audited financial statements. If the organization felt that the chance of not sending the company its audited financial statements was “remote” it would consider the promise to be unconditional.
Similarly to conditional promises to give, intentions to give are not recognized in the organization’s financial statements as a receivable.
Intentions to give are not promises; they simply represent the plans or hopes of the donor.
To aid with budgeting, some organizations choose to solicit intentions to get an idea of what donors are planning to give for the upcoming year. Care should be taken to indicate that the information will be used for budgeting purposes only and that intention is not a binding agreement between the donor and the organization.
It can be quite difficult to differentiate between an intention to give and a promise to give. The following questions offer some guidance in qualitatively evaluating donor intent:
- What was the specific language used? Promise to or will give vs. plan or intend to give
- Has the donor made partial payments? (Indicative of a promise to give)
- Does a payment schedule exist? (Indicative of a promise to give)
- Has the donor publicly announced the planned gift? (Indicative of a promise to give)
