Nonprofit & Government Times, Q1 2019

In an exchange transaction, both parties receive something of approximately equal value, whereas the recipient of a contribution does not have to do anything to earn it.

exchange transaction subject to ASC Topic 606 amended by ASU 2014-09— affectionately known as the “Rev Rec standards.” A grant can either be an exchange transaction or a contribution depending on the grant agreement. Actually, the words “grants” and “contributions” have historically been used synonymously, causing miscon- ceptions. The distinction between the two depends on the following: in an exchange transaction, both parties receive something of approximately equal value (a reciprocal transaction), whereas the recipient of a contribution does not have to do anything to earn it (a nonreciprocal transaction). Why is this distinction important to determine? Because it determines when and how the revenue will be recorded.

tions as the grantor is not directly receiving some- thing of approximate equal value.

The nonprofit would recognize revenue when they fulfill the grant requirements by providing the goods or services directly to the grantor. Exchange transac- tions are accounted for using ASU 2014-09 Revenue from Contracts with Customers ASC Topic 606, and are effective for periods ending December 31, 2019, except for organizations considered public entities for which they are effective for periods ending December 31, 2018. Government and foundation grants that benefit the general public and not the grantor directly are excluded from this accounting standard, as those are not considered to be exchange transactions. A contribution is when the grantor/contributor makes an unconditional transfer of cash or other assets, or a reduction, settlement or cancellation of its liabilities to an entity in a voluntary nonreciprocal transfer, and does not directly receive something of approximate equal value for the funds provided. The nonprofit would recognize revenue when the contribution is received or when a pledge is made, as the nonprofit does not have to do anything to “earn” it. Contributions are accounted CONTRIBUTIONS

EXCHANGE TRANSACTIONS

An exchange transaction is when the grantor directly receives something in exchange for the funds provid- ed of approximate equal value, such as goods or services that the grantor directly receives. FASB guidance has now made it clear that grants that benefit the general public are not exchange transac-

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Nonprofit and Government Times

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