Question

a nonprofit hospital receives a $150,000 donation that must be used for a specific research project. the hospital anticipates that it will undertake the project next year. how should the hospital report the donation?

Answer 1

A nonprofit health organization should report a $150,000 donation restricted for a specific future project as temporarily restricted revenue in the year it was received, reclassifying it when the project begins and the funds are used.

Step-by-step explanation:

When a nonprofit health organization such as a hospital receives a donation that is restricted for a certain purpose, it should be reported as temporarily restricted revenue.

In this case, since the $150,000 donation is designated for a specific research project that will not be undertaken until the next year, the hospital should recognize the donation in the fiscal year when the donation was received, but it should be classified as temporarily restricted because the funds are earmarked for a future project.

The funds should remain in this classification until the project begins and the money is used, at which point the restriction is met, and they can be reclassified as revenue for that particular fiscal year.

This ensures that the financial records accurately reflect the intended use of the funds and comply with accounting principles for nonprofit organizations, potentially including the guidelines set by a governmental agency like Health and Social Services.