For most nonprofits, donor contributions make up some or all the organization’s funding. Since fundraising is a regulated activity, be aware of the types of funds contributed, possible reporting and accounting requirements, and consider putting a gift acceptance policy in place.

Funds with & without donor restrictions

Nonprofit accounting standards require organizations to classify contributed income in one of two ways: with donor restrictions or without donor restrictions. This section provides information on these two income categories.

  • Funds with donor restrictions are contributions with donor-imposed restrictions that may be met by completing specific activities or after a set time passes. Donor-imposed restrictions may be permanent or temporary. If you plan to accept funds with donor restrictions, clarify the details for use, reporting, and accounting of the funds. Ensure your organization’s bookkeeper or accountant is aware of any contributions with donor restrictions as well as any specific grant or donor reporting requirements.
  • Funds without donor restrictions are contributions in which the donor places no restrictions on use other than the general support of your organization. For example, general operating funds that come with no restrictions can be used to sustain the organization as needed. A nonprofit’s board of directors may choose to identify funds for a specific purpose, such as an operating reserve. For accounting purposes, these board-designated funds are still considered to be without donor restrictions since the donor did not specify the condition(s).

Special event proceeds

Income generated through the attendance of a specific fundraising event, either through donations given at the event or ticket sales, are considered special event proceeds. If the organization advertised the special event as supporting a specific program, initiative, or campaign, the bookkeeper or accountant needs to restrict the funds accordingly. Written acknowledgements to donors reflect the net tax-deductible amount.

For example...

A donor gives a nonprofit $100 for an event and receives a dinner with a fair market value of $40. This is known as a quid pro quo contribution. Although the deductible part of the payment ($60) is less than the $75 threshold mentioned earlier in the chapter, the nonprofit must provide the donor a written acknowledgement or disclosure statement as the donor’s payment ($100) is greater than $75.

Gift acceptance policy

There are times a nonprofit should not or may not want to accept a gift offered by a donor. Some gifts or proposed restrictions may create more difficulty and unanticipated expense than actual benefit for the nonprofit. A nonprofit should consider implementing a gift acceptance policy that clearly states what types of gifts the organization will and will not accept. Establishing a gift acceptance policy helps manage donor expectations and provides direction to board members, staff, and volunteers who may support fundraising efforts. Check out this sample gift acceptance policy from National Council of Nonprofits as a place to get your started.

Grow

Activity

Using the sample income statement from chapter 2, answer the following questions:

  1. According to the budget, what are the organization’s four largest funding sources? What percentage of the budget does each source make up?
  2. In terms of giving, what does the organization’s bookkeeper or accountant need to track?
  3. At this time, are the nonprofit’s income streams diversified? Why or why not?

Find the correct answers for this activity here.

Skip to content