Question

When a donor promises to give assets to a not-for-profit organization, the gift is recorded:

A) When the pledge is fulfilled and the not-for-profit organization receives the cash.
B) At the time any promise is made.
C) At the time an unconditional promise is made.
D) All of the above may be appropriate points at which to recognize a pledge.

Answer 1

A not-for-profit organization should record a gift when an unconditional promise is made, per the Financial Accounting Standards Board (FASB) guidelines. Conditional pledges are recorded when the conditions are met.

Step-by-step explanation:

When addressing contributions to a not-for-profit organization, it is important to refer to the accounting standards that govern how and when to record such pledges. The correct recognition of a donation pledge depends on whether the promise to give is conditional or unconditional.

The correct answer to when a not-for-profit organization should record a gift according to accounting standards, specifically the Financial Accounting Standards Board (FASB), is C) At the time an unconditional promise is made. This means that an unconditional pledge is recognized as revenue in the period the promise is made as long as it is measurable and collection is probable.

Conditional pledges, depending on specific occurrences or actions, are recognized when the conditions are substantially met. Hence, answers A and B, referring to the receipt of cash or any promise respectively, are not necessarily correct for the recognition of a pledge as per the associated accounting standards.