Deferred Contributions

Deferred Contributions

(The accounting for deferred contributions is best understood in conjunction with the accounting for contributions.)

When a restricted contribution is received for which no restricted fund has been established, the contribution is deferred on the statement of financial position as a deferred liability until such a time as it is "earned." A restricted contribution is "earned" when the conditions regarding its use are met. The accounting for deferred contributions is illustrated in the two examples below:

Required Disclosure

Example #1: Deferred Contributions set up in the Contribution for Expenses of Future Periods

The recognition of a contribution designated for the expense of a future period will be deferred until the expense is incurred, at which time the contribution is recognized in revenue. The entry, on receipt of the contribution, records a deferred contribution:

• debit cash (or contributions receivable) $XXX
  credit deferred contributions. $XXX

When the expense is made, the contribution is recognized as revenue. The entries recording the expense and recognizing the revenue are:

• debit expense $XXX
  credit cash $XXX
• debit deferred contributions $XXX
  credit revenue (contributions) $XXX

(Had there been a restricted fund for this contribution, the contribution would have been recognized as revenue immediately in the restricted fund and not set up as a liability - deferred contribution. The contribution would have been included in the organization’s restricted net asset balance until used for the designated purpose: in other words a restricted fund balance is increased by an unspent contribution, resulting in an increase in restricted net assets. Under the deferral method of accounting, an unspent contribution would not increase the organization’s net asset balance, but would increase deferred contributions.)

Example #2: Deferred Contributions Arising from Capital Contributions

When a contribution for the purchase of capital assets is first received, it is set up as a deferred contribution. The entry made is:

• debit cash $XXX credit
  deferred capital contributions (unspent) $XXX

When the asset has been purchased and is ready for use, the contribution is no longer an "unspent capital contribution." An entry would be made to reduce the "unspent deferred capital contribution" balance and increase the "deferred capital contributions-unamortized" balance. The contribution would then be amortized into revenue on the same basis as the amortization of the purchased asset. The reason for the amortization of the contribution into revenue is that the expense of the asset occurs with the amortization of the asset and so the required matching of the contribution with the expense will occur when the amortization of the contribution matches the amortization of the asset. The periodic entries will be:

• debit deferred capital contribution (unamortized) $XX
  credit revenue (contributions) $XX
• debit amortization expense $XX
  credit accumulated amortization $XX

Required Disclosure

An organization is required to disclose the major categories of restrictions in deferred contributions. (4400.26,.28)
An organization must show the nature and amount of changes to deferred contributions. (4410.53,.74) This may best be done in a separate statement or in the notes, showing the opening balances, ending balances, amounts received, and recognized in revenue for major categories of deferred contributions.
Deferred contributions are shown outside of net assets. (4410.52,.73) There is no requirement to disclose the current portion of deferred contributions; the current portion would not be presented as a current liability.