Promises to Give: How to Account for a Donor’s Written Promise

Great news, your not-for-profit organization just received a written promise to give from a donor to help kick-start your project or initiative! But now you need to ensure your accounting for it is proper under GAAP to avoid any significant year-end adjustments.

This article will highlight key factors to keep in mind as you’re assessing the proper accounting treatment of the promise to give. The most important step when assessing the accounting of the promise to give is to determine what type of promise it is, either conditional or unconditional.

Conditional promises to give should not be recognized as contribution revenue until the conditions have been substantially met or explicitly waived by the donor. In order to be considered a conditional promise, there must be two components:

1. One or more barriers to be overcome before you’re entitled to the assets transferred or promised.
2. Right of return to the donor for assets already transferred (if the promise has already been paid before the barrier has been overcome) or a right of release of the donor from their promise to give.

For the conditional promise to exist, it needs to be determinable from the pledge agreement or other document referenced within the pledge agreement. The pledge agreement should be clear enough to support a reasonable conclusion about when your organization is entitled to the transfer of assets. If there is no apparent indication that your organization is only entitled to the transfer of assets after it has overcome a barrier, then the pledge should be considered an unconditional contribution.

If there are ambiguous stipulations/conditions from your donor, then the promise to give should be presumed to be a conditional promise and not be recognized until the barriers are overcome.

If you receive cash from a donor relating to their promise to give, but you have determined there is a barrier and right of return from the pledge agreement, then the cash received would be recorded as a liability/refundable advance and the contribution revenue would not be recognized until the barrier is overcome.

Unconditional promises to give should be recognized as contribution revenue immediately but must contain sufficient verifiable documentation to support the promise (supporting signed pledge agreement). You have an unconditional promise to give if the previously stated criteria for a conditional promise are not satisfied.  

The passage of time is frequently included in pledge agreements, as the promise to give may be paid over the next several years, but it is important to note that the passage of time does not create a barrier and should still be recognized immediately as contribution revenue/pledge receivable.

Now that you have determined you have an unconditional promise to give, you will need to recognize the contribution revenue and related pledge receivable. If you expect to receive the contribution within one year, then you will book the contribution revenue and related pledge receivable at net realizable value (what you expect to collect). If you expect to receive the promise to give over the next few years, then you will book the contribution revenue and related pledge receivable using present value techniques. There are numerous online calculators that allow you to calculate the present value, but you will need to determine the appropriate discount rate to utilize. Common discount rates utilized often include, but are not limited to, the Section 7520 Interest Rates or the applicable U.S. Treasury rate and the rate should be determined as of the date the unconditional promise to give is initially recognized (at the time the pledge agreement is entered into). When determining which discount rate to use, it is best to be consistent with the type of discount rate utilized for all your pledge receivables.

When booking the pledge receivable, and as you monitor your receivables moving forward, there are a few key items to keep in mind:

1. When is the promise to give expected to be collected?
2. What are your expectations for potential variations in the amount/timing of cash flows from the promise to give?
3. What’s the creditworthiness of the donor and what has your past collection experience looked like?
4. Any other collectability concerns for this promise to give?

Lastly, it is important to keep in mind donor-imposed restrictions when assessing the promise to give and ensuring the promise to give is properly recorded as restricted or unrestricted. But do not confuse a donor-restriction with a donor-imposed barrier.

For example, a donor may indicate in the pledge agreement that their $100,000 contribution may only be used for the benefit of your XYZ program, while indicating no specific barriers to be overcome to receive the contribution. This would be a restriction and not a barrier and would be considered an unconditional promise which should be recognized as restricted contribution revenue/pledge receivable as soon as the pledge agreement is entered into.

But if the donor indicated in the pledge agreement that their contribution may only be used for the benefit of your XYZ program and they will donate $100,000 only if you first raise $200,000, then you have the barrier to overcome of raising $200,000 before your organization has rights to the $100,000 promise to give. You then have a conditional promise, which will not be recognized as restricted contribution revenue until the barrier is overcome (until you first raise $200,000).

In summary, it is vital that you obtain a strongly worded signed pledge agreement for promises to give from your donors and ensure any such barriers, rights of return, rights of release, restrictions or other matters are explicitly stated in the agreement.

If you have additional questions or need assistance, please contact Alex Calendo at or your Kerkering Barberio representative at (941) 365-4617.