ASC 958-605: Contributions Revenue Journal Entries

ASC 958-605: Contributions Revenue Journal Entries

Posted In | ASC Education | Gridlex Academy

Not-for-profit entities rely on contributions from donors to fund their programs and operations. Properly accounting for these contributions is crucial for maintaining accurate financial records and ensuring transparency for stakeholders. The Accounting Standards Codification (ASC) 958-605, specifically addresses revenue recognition for contributions received by not-for-profit entities. In this article, we will explore ASC 958-605, focusing on contributions transactions, and explain how to record these transactions using journal entries.

 

Overview of ASC 958-605

ASC 958-605 is a part of the Accounting Standards Codification issued by the Financial Accounting Standards Board (FASB) in the United States. This standard provides guidance on the recognition, measurement, and disclosure requirements for contributions received by not-for-profit entities. It outlines the specific accounting treatment for recognizing contributions, including donor-imposed restrictions and conditions.
 

Types of Contributions

Contributions can be categorized into two main types based on the donor's intentions:

 

  1. Unrestricted contributions: These contributions can be used by the not-for-profit entity for any purpose without any restrictions or conditions imposed by the donor.

 

  1. Restricted contributions: These contributions are subject to donor-imposed restrictions or conditions, such as the use of funds for a specific purpose or time period.

 

Journal Entries for Contributions Transactions

To illustrate the application of ASC 958-605, let's consider a hypothetical example of a not-for-profit entity that receives a $10,000 unrestricted contribution and a $15,000 restricted contribution for a specific program.

 

1. Recording unrestricted contributions:

Debit: Cash - $10,000

Credit: Unrestricted Contributions Revenue - $10,000
 

This journal entry records the receipt of the unrestricted contribution, with the credit entry to the unrestricted contributions revenue account.

 

2. Recording restricted contributions:

Debit: Cash - $15,000

Credit: Restricted Contributions Revenue - $15,000
 

This journal entry records the receipt of the restricted contribution, with the credit entry to the restricted contributions revenue account.

 

3. Recognizing the satisfaction of donor-imposed restrictions:

When the not-for-profit entity spends the restricted contribution on the specific program as intended by the donor, the donor-imposed restriction is considered satisfied, and the revenue is reclassified from restricted to unrestricted.
 

Assuming the entity spends the entire $15,000 on the specific program:
 

Debit: Restricted Contributions Revenue - $15,000

Credit: Unrestricted Contributions Revenue - $15,000
 

This journal entry reclassifies the revenue from restricted to unrestricted, reflecting the satisfaction of the donor-imposed restriction.
 

Understanding and applying ASC 958-605 is essential for not-for-profit entities to ensure accurate financial reporting and provide transparency to stakeholders. By following the guidance provided in this standard and recording transactions using journal entries, not-for-profit entities can comply with accounting requirements and maintain accurate records of their contributions. The appropriate recognition of contributions, taking into account donor-imposed restrictions and conditions, allows for a more accurate reflection of the not-for-profit entity's financial performance and resource allocation. By adhering to ASC 958-605, not-for-profit entities can instill confidence in their donors, promote accountability, and ultimately support the success and growth of their organization.