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Accounting methods for NFPOs



  • Last updated: September 11, 2015
  • Latest Reply From: webee

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I would like to ask a question about fund accounting and not-for-profit organizations. When is it appropriate to use the restricted fund method or the deferral method? What are the pros and cons of each? Thank you.


The two methods of contribution are optional. Restricted fund method will take all restricted contributions into the current period, by segarating the restricted fund into a separate fund accounting. Deferral method will only recognize portion of the restricted contribution, leaving the other portion to future periods for matching with revenue with related expenses. It is used when restricted fund method is not used, so it is like a catch all for fund accounting. One example where restricted fund can be applied equally as good as the deferral methos is the restriction contribution to a church for the construction of the building. When, say, $3,000,000 was cumulated, the restricted fund method will show 100% of the contribution in the current year of receipt, by segregating the contribution into a separate fund. The deferral contribution would only take in a percentage of the contribution, to match with current expenses (e.g. amortization expense of the buidling), and leave the balance of the contributed received in the Deferred Contribution account on the balance sheet. Each year, related expenses (amortization expense in this case) will be expenses, and correspondingly, revenue used to match the amortizaiton expense will be debited from the Deferred Contribution account with the credit to the Contribution credit.

P.S. be aware of the new accounting standard of NPO under discussion - it might make both the Deferred method and Restricted Fund method obsolete, as revenue is proposed to be recognized when received or receivable.



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