Accounting for Restricted Grants Properly When and How Do I Record These Things?.pdf

ACCOUNTING FOR
RESTRICTED GRANTS PROPERLY:
WHEN AND HOW DO I
RECORD THESE THINGS?
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QuickBooks Made Easy for Nonprofits – Accounting for Nonprofits

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Today’s Agenda
✓ Accounting Rule Basics
✓ Latest Accounting Rules (GAAP)
✓ What you need to decide before booking
✓ Grant vs. Exchange Transaction
✓ Conditional vs. Unconditional Grant
✓ Restricted or Unrestricted Grant
✓ When to Book
✓ How to Book
✓ BONUS: Dealing with Grants Received for
Future Years

WHO AND WHAT
DECIDES
ACCOUNTING RULES
THE BASICS:

A PARADE OF ACRONYMS
WHAT ARE THE ACCOUNTING RULES THAT ARE ACCEPTED IN USA?
➢GAAP
➢ or GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (10)
WHO DECIDES THOSE?
➢FASB
➢ or FINANCIAL ACCOUNTING STANDARDS BOARD (7 members)
ARE THESE WRITTEN DOWN SOMEWHERE?
➢Yes… through ASC
➢ or ACCOUNTING STANDARDS CODIFICATION
➢ ASC IS THE ONLY AUTHORITATIVE SOURCE FOR US GAAP
➢ LEGAL-EEZE, WORDY, TECHNICAL
➢Explained via… ASU’s
➢ or ACCOUNTING STANDARDS UPDATES
➢ ARTICLES THAT EXPLAIN THE ASC’S

A PARADE OF ACRONYMS
➢GAAP GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (10)
WHO DECIDES THOSE?
➢FASB FINANCIAL ACCOUNTING STANDARDS BOARD
THEY PUT OUT :
➢ ASC’s ACCOUNTING STANDARDS CODIFICATION
(FORMAL RULES)
➢ASU’s ACCOUNTING STANDARDS UPDATES (EXPLAINS
RULES)

DO I HAVE TO FOLLOW GAAP?
➢ UNLESS YOU ARE
➢ GETTING AN ANNUAL AUDIT, REVIEW OR COMPILATION
➢ THAT IS IN ACCORDANCE WITH GAAP
➢ THE REPORT WOULD NEED TO BE IN ACCORDANCE WITH GAAP
➢ BUT EVEN THEN ……
➢ DURING THE YEAR, YOU DON’T HAVE TO DO IT
➢ YOU WOULD JUST NEED TO ADJUST TO IT AT YEAR END
NOPE

EXAMPLE OF NOT FOLLOWING
GAAP DURING YEAR….
➢ TECHNICALLY, GAAP REQUIRES MANY RESTRICTED GRANTS
➢ TO BE BOOKED INTO REVENUE
➢ AS SOON AS YOU GET THE AWARD LETTER
➢ EVEN IF IT’S FOR FUTURE YEARS
MANY CHOOSE TO NOT BOOK THESE FUTURE
REVENUES UNTIL FUNDS ARE RECEIVED
….AND JUST ADJUST AT AUDIT TIME

THIS SESSION…..
➢IS TO TEACH YOU WHAT THE GAAP
RULES ARE
➢IN CASE YOU WANT TO USE THEM
➢SO YOU ARE READY AT AUDIT TIME
➢YOU CAN SOUND SMART AT
PARTIES!!!!!

GRANT REPORTING
GUIDANCE UNDER
GAAP
THE BASICS:

GAAP RULES FOR GRANTS
ASC IS 958-605
“ NOT-FOR PROFIT ENTITIES – REVENUE
RECOGNITION”
ASU IS 2018-08 (EFFECTIVE 2019)
“ CLARIFYING THE SCOPE AND THE
ACCOUNTING GUIDANCE FOR CONTRIBUTIONS
RECEIVED AND CONTRIBUTIONS GIVEN”
QuickBooks Made Easy for Nonprofits - Tracking Restricted Grants

ASU 2018-08 ASKS YOU TO
DETERMINE IF TRANSACTION IS
CONTRIBUTION (GRANT) OR EXCHANGE
TRANSACTION (SALE)
IF EXCHANGE (SALE) – DIFFERENT RULES (ASC
606)
IF CONTRIBUTION (GRANT) …..
 CONDITIONAL OR UNCONDITIONAL
 RESTRICTED OR UNRESTRICTED
BASED ON ANSWERS …. SAYS WHEN TO BOOK TO
REVENUE

SUMMARY OF ASU 2018-08 FLOW CHART
IS IT A
CONTRIBUTION/
GRANT?
TREAT AS EXCHANGE
TRANSACTION (SALE) –
BOOK AS EARNED
IS IT
CONDITIONAL?
HAS CONDITION
BEEN MET?
WAIT TO BOOK
TO REVENUE
YES
BOOK TO
REVENUE NOW!!!
EVEN IF YOU
HAVEN’T GOTTEN
THE MONEY
YET!!!
EVEN IF IT’S
RESTRICTED FOR
A FUTURE
PERIOD!!!
SEGREGATE
IT ON P&L

CONTRIBUTION/GRANT
VS.
EXCHANGE TRANSACTION
THE RULES:

CONTRIBUTION VS. EXCHANGE
IN GENERAL…..
CONTRIBUTION/GRANT
GIFT
PAYER DOES NOT RECEIVE DIRECT
BENEFIT
EXCHANGE TRANSACTION
SALE
PAYER GET’S BENEFIT
SOMETHING IN RETURN OF SIMILAR VALUE

 ASU 2018-08
GIVES “INDICATORS”
UP TO YOUR INTERPRETATION
INDICATORS OF CONTRIBUTION
PAYOR CONTROLS HOW MUCH IS PAID
PAYOR DOESN’T RECEIVE DIRECT BENEFIT
PAYOR IS A GOVERNMENT (UNLESS IT
RECEIVES DIRECT BENEFIT)

 ASU 2018-08
INDICATORS OF EXCHANGE/SALE
PAYOR LOOKING TO BUY SOMETHING
PAYOR RECEIVES A PRODUCT OR SERVICE
IN EXCHANGE
https://www.cpajournal.com/2019/04/29/applying-the-new-accounting-guidance-for-
contributions/

CONTRIBUTION OR EXCHANGE?
• SELLING T-SHIRTS
• SELLING TICKETS TO A CONFERENCE
• MEMBERSHIP DUES WHERE U GET BENEFIT
• MEMBERSHIP DUES TO PBS (GLORIFIED DONATION)
• GRANT FROM FOUNDATION
• CONTRACT WITH GOV TO FEED HOMELESS

CONTRIBUTION OR EXCHANGE?
POLL

CONDITIONAL VS. UNCONDITIONAL
IN GENERAL…..
CONDITIONAL IF (2 THINGS)
BARRIER (major) TO OVERCOME
-AND-
 DONOR HAS A “RIGHT OF RETURN”
 TAKE FUNDS BACK
 NOT GIVE FUNDS
UNCONDITIONAL
NO MAJOR BARRIER

 ASU 2018-08
INDICATORS OF CONDITIONAL = MAJOR BARRIER
MEASURABLE OUTCOMES
DONOR CONTROLS PROGRAM ACTIVITY
ONLY ELIGIBLE PARTICIPANTS CAN QUALIFY
REIMBURSEMENT BASED
MATCHING GRANT

 ASU 2018-08
INDICATORS OF UNCONDITIONAL
NO MAJOR BARRIERS
 REPORTING REQUIREMENT NOT MAJOR
https://www.cpajournal.com/2019/04/29/applying-the-new-
accounting-guidance-for-contributions/

• PROVIDE MEALS TO 350 ELIGIBLE
CHILDREN IN 4 MONTH PERIOD
• SUPPORT YOUR SOUP KITCHEN
• TRAIN 400 STATE WELFARE RECEIPIENTS ON
WORK SKILLS
• SUPPORT JOB TRAINING PROGRAM
• SUPPORT JOB TRAINING – REIM. BASED
• CAN’T GET FINAL FUNDS UNTIL REPORT
• CAN’T GET FINAL FUNDS SHOW MATCH

• PROVIDE MEALS TO 350 ELIGIBLE
CHILDREN IN 4 MONTH PERIOD
• TRAIN 400 STATE WELFARE RECEIPIENTS ON
WORK SKILLS
• SUPPORT JOB TRAINING – REIM. BASED
• CAN’T GET FINAL FUNDS SHOW MATCH

CONDITIONAL OR UNCONDITONAL?
POLL

BOOKING THE GRANT
STEP 1: CREATE INVOICE/PLEDGE IN
BOOKS
FULL AMOUNT OF AWARD
POINT TO REVENUE ACCOUNT
STEP 2: RECORD PAYMENT AGAINST
INVOICE

RESTRICTED VS. UNRESTRICTED
A CONTRIBUTION/GRANT IS RESTRICTED IF:
Use Restrictions – must be
spent for a specific purpose
More than the mission
Time Restrictions – must be
spent over a specific period
of time

IS IT RESTRICTED?
• “TO PAY FOR 50% OF PROGRAM EDUCATOR ”
• “IN SUPPORT OF YOUR ORGANIZATION”
• “FOR YOUR GO-GREEN GUIDANCE CENTER”
• “FOR THE 2023 YEAR”
• “TO PAY FOR TRAVEL FOR CONFERENCE”

Restricted Grants for Future
• Can skew P & L reporting
- Showing a HUGE profit
- When part of that is for next year
- Or a BIG loss
- When you are just spending P/Y funds
• Correct by segregating future amounts
• Put future Grant $ in “Grants Restricted for Future”
Other Income type

THANK YOU!!!!
Presenter: Gregg S. Bossen, CPA
@GreggBossen
Please Leave a Google Review!!
(we appreciate it):
https://g.page/r/Ca4UBrkOS1rREAg/review

Accounting for Restricted Grants Properly When and How Do I Record These Things?.pdf

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