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Donation Transactions

End of Year Donations

Jan 6th, 2011
by Alan.
4 comments

Is the end of the year the end of your year? We get questions like this all the time:

Question — The end of our fiscal year is December 31. Our offices our closed from December 31 through January 3rd. If funds are sent on or before December 31 but not received and deposited until after January 3, do those funds get credited for the previous fiscal year as a donation?

Answer — You should set a cut of date in January for when you start recording gifts as 2011 rather than 2010. A week to ten days in is usually sufficient. If funds are sent prior to 1-1-11 (I prefer to use the post mark on the envelope as a guide rather than the date on the check) I would definitely honor those as a 2010 contribution.

You would record those as 2010 income even though you deposit them in 2011. In QuickBooks, you would list each of the checks as a sales receipt and date them for the appropriate December date and have the funds go to Undeposited Funds (you may have to create or activate that account). Then record the bank deposit of those funds on the day they were deposited. The income matches the donor intent and your checking account will reconcile up nicely to the bank statement. Then all you have to do is get the donor thank-yous out so they can prepare their tax returns.

Other ideas out there? Questions? Ask them or tell us in the comments below.

What Restricted Means

Aug 12th, 2010
by Alan.
2 comments

A question came through my in-box a while ago and made me realize that I should clarify some terms that I think we hear a lot in nonprofits.  Here is the main part of the email:

When a member joins our nonprofit they are required to provide a membership fee which is refundable in full if they move out of the neighborhood. Because these fees are refundable (i.e., deposits), would they be considered restricted funds?

The short answer is no, and for several reasons. #1 – the monies received were probably not contributions with any donor restrictions on them so would not be restricted funds. #2 – These sound like deposits that they have to hold onto and not spend so they can give them back if need be. That would not be considered income so could not be restricted.

Restricted is a word we hear quite a bit in nonprofits when it comes to money. So is unrestricted, conditional, temporarily restricted among others, and with the above email in mind I thought I would define a few terms.

Restricted — as in restricted income, restricted donations, restricted revenue. The world of nonprofit accounting is made a touch more complex because donors can tell us exactly what they would like us to do with the money they give us. They can restrict the use of the funds for specific purposes. “I like your organization and I want to give you money to operate this program.” That is a restricted donation. Your nonprofit is given money for a purpose that is narrower is scope than your organizations overall purpose. You can ask for restricted donations, “Please help our organization by giving money to support this program.” The donor imposes any restrictions on the funds they give you. If they don’t the donation would be considered unrestricted. Earned revenue is unrestricted. Most government money is unrestricted – they are not giving you any money, they are hiring you to perform a service and will only pay you if you perform the service.

Conditional — not the same as restricted. Conditions are imposed by donors on funds they want to give you. Matching funds are a common example; you’ll get $20,000 if you raise $10,000. Even if you already have the $20,000 sitting in the bank it is not yours (it is in fact a liability — money you owe someone else) until you raise the other $10,000 and satisfy the conditions of the grant.

I’ll do some more terms in later posts but if you have any questions about the above items or have other questions leave them in the comments section below.

Even More Questions and Answers

Nov 4th, 2009
by Alan.
1 comment

Questions?Here are even more nonprofit accounting and financial questions that have come to from this site and from my workshops and my answers.

Question – California’s RRF-1

Are there any income minimums for filling out the California Attorney General’s Registration / Renewal Fee Report (RRF-1 form)?

Answer – No, but the fees charged vary based on the organization overall income.

Question – Donation Transactions

Let’s say Joe buys a necklace for $1,000.00. He gives it to a nonprofit to sell at auction. Two questions:

  1. It sells for $1,200.00 – what year end donation value does Joe get on his year end donation statement.
  2. It sells for $800.00 – what year end donation value does Joe get on his year end statement for IRS.

Also, if it sells for $1,200.00 what donation value does the purchaser get on her year end tax statement? My concern is who to give the donation credit to for year end tax purposes.

If someone gives a basketball that a sports star signs and the basketball cost $10.00. Yet someone is a real fan of the sports star and is willing to purchase the basketball for $1,000,000.00 – does the purchaser not receive any donation value for income tax purposes, he gets no statement at the end of the year, even though he gave $1,000,000.00 for a $10.00 basketball? And the person who bought a $10.00 ball and had a signature put on it gets a year end tax donation statement for 1,000,000.00?

I have read GAAP until I am blue in the face and cannot find an answer to the donation side of this issue. Lots on the bookkeeping of the sold asset, but not on what to report to IRS as donation value per donor and purchaser.

Answer -In your example above, for the person who gave the ball to be auctioned you do not put a value on the donor acknowledgment. It is not the nonprofit’s job to give tax advice to the donor, and by giving them a value that is what you are doing. Just simply say, “Thank you for the donation of the autographed basket ball.” What the donor values it on their tax form is between them and the IRS.

For the person who pays $1,000,000.00 for the ball you would give them a receipt showing that they donated $1,000,000.00 to the nonprofit less the cost of a basket ball. If you can find a value for a similarly signed ball, say on Ebay or something, you could tell them the value is their donation less the cost of the autographed ball.

Donation rules tend to be made by the IRS rules and not come from GAAP rules. A really good resources for this is IRS publication 1771. Gives you the rules and even sample language. Please check out this post, it also help answer your questions.

Financial Management

Sep 30th, 2009
by Alan.
No comments yet

MFMP-logoI have written before about creating policies for your nonprofit. Now nonprofits have a new tool they can easily use to create their own financial management policies and plans. The Nonprofit Risk Management Center has a new tool called My Financial Management Plan where users can go through up to 21 different modules on nonprofit financial and accounting topics to create a variety of policies and procedures to help manage, organize and streamline their financial operations. From the Risk Management Center:

Nonprofit leaders have spent countless hours developing the necessary components of a financial management plan. But for many organizations the components, from an annual budget, return on investment strategy, cash flow planning tool and more, remain disparate. The nonprofit lacks a cohesive plan that reflects the organization’s commitment to the effective stewardship of its assets. My Financial Management Plan was created to guide leaders in updating the components of their financial management systems and integrating these components into a cohesive plan. This powerful system features covers topics such as Board Fiduciary Obligations, Managing Fraud Risk, Managing Cash Flow, Return on Investment Analysis, Cost Allocation, Classifying Net Assets, Managing Cash Flow, Budgeting, the form 990 and Grants and Contributions.

My Financial Management Plan is a powerful tool to turn financial management strategies, policies and protocols into a plan that will help your nonprofit demonstrate both competence and accountability. Use the “Plan Modules” feature to go through the 22 system modules. Each module offers the opportunity to upload existing material from your financial management system, create new content (based on our templates or created “on the fly”), or skip sections you don’t wish to use. Use the “Manage My Plan” feature to edit your draft plan, upload supporting PDF files and view/download your plan. The system also features a classroom with easy-to-understand articles and resources on a wide range of financial management topics.

I was fortunate enough to work on this project and create a lot of the module content. I know that this will be a great tool for nonprofits to learn about what they need know about with regards to their nonprofit’s finances and creating the appropriate policies and procedures to ensure good financial stewardship. For those not ready to buy access to the program you can register with the site to receive periodic email updates on nonprofit financial issues.

If you have any questions or comments about the program please let me know via email or in the comments below.

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