Promises versus Intentions
Posted on Wednesday, August 29, 2012
Although a promise to give and an intention to give sound like the same thing, they are not and are accounted for very differently when it comes to nonprofit accounting.
Many times a donor will promise or pledge to make a contribution to a nonprofit organization. This usually happens during a capital campaign, when a donor completes a pledge card stating how much he is going to give to the organization. As a result, the organization recognizes the amount pledged as revenue and as a receivable at the time the promise is made.
Promises can be made either in writing or verbally, but there must be documentation to support the pledge. In the instance above, the pledge card, which includes the donor’s name and address and amount to be given, serves as adequate documentation. In the instance of a verbal pledge, documentation could be a recording or written evidence by the individual to whom the pledge was communicated to. Written evidence should include the donor’s name, address and telephone number, as well as the amount of the promise, date of promise, date(s) the promise is due and the name of the individual to whom the promise was made.
What if a donor makes an intention to give to the organization as opposed to a promise?
An intention is not the same as a promise to give. The donor is intending or planning to give but hasn’t made the next step in making that promise. A common example of an intention is when a donor notifies an organization that the organization has been named as a beneficiary in the donor’s will. Unlike promises, intentions are not recorded in the organization’s revenue. This communication is only an intention until the donor passes away and the will is declared valid. Once the will is declared valid, the intention becomes a promise to give and is recorded in revenue.
It is important for nonprofit organizations to be aware of the language used in raising funds to ensure revenue is properly recorded.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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