Where does the bulk of revenue come from when it comes to nonprofit funding sources? We explore the top 4 and how to remain compliant when it comes to reporting income.
For most non-profit organizations, there is a need to come up with new ways of raising revenue every year since they require the financial resources to fulfill their mission and support their cause. Even though the organizations might use different themes year in year out, and there might be new players willing to offer donations, the sources of funding are typically similar.
The following 4 methods are generally used to raise funds:
1. Fees for Service
In most scenarios, one might be quick to think about donations every time there is mention of nonprofit organizations. However, in the real sense, there is a certain amount of income that comes from the fees charged for services offered or the sale of products. Statistics show that the amount of funding collected from services account for about 48 percent of the total revenue for the nonprofit organizations.
2. Charitable Contributions
Even though nonprofits receive nonprofit funding from diverse sources, the individual charitable contributions amount for the highest percentage of the funding. Statistics shown in Giving USA report shows that in 2017, the total charitable contributions made in the United States was roughly $410.02 billion, whereby 71 percent of this amount was from individual contributors.
3. Corporate Philanthropy
In recent times, corporate philanthropy has become a crucial aspect of nonprofit organizations. As such, these organizations are continuously making corporate partnerships that help in cause-related marketing and sponsorships. There are some companies that encourage employees to make charitable donations and partnering with such companies, nonprofit organizations are set to benefit.
4. Government Grants
Most nonprofit organizations get funding from all levels of government in the form of grants as long as their cause is genuine. This includes getting easy access to public media, higher education, and public education. Also, the programs provided by these organizations receive government funding especially those related to healthcare and human service.
Reporting Revenue from Funding Sources
Contributions made to nonprofits don’t follow the normal revenue reporting rules since they are non-reciprocal. A contribution should be generally reported after a commitment to donate is made or after receiving the donation. If there are any restrictions imposed as to when or how the funds are to be used, this does not affect the timing of recognition, only the classification of the revenue as ‘with donor restrictions.’
However, in the event that the donor’s contributions will only be availed after meeting certain requirements, then the timing of recognition can be affected. In such a scenario, you are supposed to recognize the given conditional promise, which will act as support until the organization meets all required conditions.
Recognizing Grant Funding
When it comes to nonprofit grants, there is a need to determine whether they qualify to be an exchange transaction. If the grant falls under the exchange transaction, then it will be subject to the five-step framework of ASU 2014-09 as listed below:
- Identify the contract made with a customer
- Identify the required performance obligations spelled out in the contract
- Determine the quoted transaction price
- Allocation of the transaction price to the contract’s performance obligations
- Recognition of revenue after satisfying the performance obligation
In a nutshell, nonprofit organizations require funding sources in order to run their day-to-day operations. The contributions made act as the organization’s revenue and must be reported in accordance with ASU 2016-14. The information above clearly outlines how nonprofit funds are sourced and how funding is reported in order to remain compliant and transparent.
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