Question: How Do I Book a Multi-Year Pledge?
We have a donor who has signed a pledge to give $2,500 a year for the next five years to our annual fund. The donor and the development office want to show gift revenue of $2,500 in each of the five years. Our finance office insists on crediting all $12,500 to this year’s annual fund with nothing in the subsequent four years.
How do we in the Development Office “win this battle” to reflect the donor’s intent and the receipt of the gift over 5 years?
Answer:
Unfortunately, the donor’s intent and development office’s reporting preference don’t match with the accounting principles that your finance office needs to follow.
Under U.S. Generally Accepted Accounting Principles (GAAP), accounting for pledges is primarily governed by the Financial Accounting Standards Board (FASB) Accounting Standards. Per FASB Statement No. 116:
“Generally, contributions received, including unconditional promises to give, are recognized as revenues in the period received…” The scope applies to “contributions of cash and other assets, including promises to give.” (FASB Statement No. 116)
Many development offices get around the FASB standard by having a Memorandum of Understanding or Letter of Intent to serve the purpose of a pledge agreement, including a multi-year pledge. Yes, it’s semantics. However, the donor’s wishes can be respected, reminders sent on schedule, and revenue recorded in the year the gift is received.