A Review of Accounting for Grants and Contributions 

By Anne Cloutier April 25, 2025

In 2018, the Financial Accounting Standards Board (FASB) issued guidance to clarify and improve the accounting guidance for grants and contributions. This was the result of ambiguity under prior guidance in characterizing grants and similar contracts as either exchange transactions or contributions and in determining whether a contribution is conditional, all of which impact that accounting treatment and proper revenue recognition. 

In accounting, a nonreciprocal transaction is a one-way transaction (transfer of assets or services) where the recipient does not provide anything of equivalent value in return. These transactions fall under the accounting guidance for contributions (ASC 958). In contrast, a reciprocal (exchange) transaction is one where both parties give and receive value. These types of transactions fall under the accounting guidance in ASC 606.  

An overview of accounting differences between exchange transactions and contributions as defined in the standards can be found in this article.  

The discussion below is intended to highlight certain nuances in accounting for transactions determined to be contributions. 

Is a grant a gift? 

Understanding the substance of the award is key to determining which accounting guidance to follow. The use of the term ‘Grant’ often creates confusion in determining the proper accounting treatment, particularly when the grant comes from a government source. Technical accounting guidance does not use the term ‘grant’ as that word identifies the name or form of a transaction, but not its substance. FASB uses the terms gift, donation and contribution interchangeably throughout the guidance to describe nonreciprocal transactions and avoids the use of the term grant. It is necessary to carefully read the award agreement, terms and requirements to determine if a document referred to as a grant is truly a contribution or an exchange transaction. 

Where is an unrestricted contribution reported? 

Accounting guidance permits the reporting of contributions as either operating or nonoperating revenue. This determination is made based upon what the organization considers to be the nature of its operations. If the use of the term ‘operations’ is not apparent from the details provided on the face of the income statement, a note to the financial statements should describe the nature of the reported measure of operations or what items are excluded from operations.  

An organization should be consistent in its classification of contributions in accordance with the accounting policy adopted for its measure of operations. Clearly defining the nature of an organization’s operations and its significant accounting policies within the notes to the financial statements will make the classification of contributions more apparent to a user of the financial statements. 

How are contributions received for property plant and equipment reported (long-lived assets)? 

In 2016, FASB provided additional guidance for nonprofits related to accounting for gifts of cash and other assets to be used to acquire or construct a long-lived asset. More details on this guidance can be found in a previously published article.  

Cash contributions for the purpose of acquiring or constructing property, plant, or equipment are considered donor-restricted for a particular purpose. These gifts should initially be classified as donor-restricted contributions upon receipt and should be reclassified from net assets with donor restrictions to net assets without donor restrictions when the acquired or constructed property, plant, or equipment is placed in service. The entire amount of the cash contribution should be reclassified at the time the asset is placed in service, not over time as cash is spent on the project.  This is a change from past practice. 

For healthcare providers, there is additional guidance which specifically indicates that contributions of long-lived assets and cash used for the acquisition of long-lived assets (when released from donor restrictions) should be excluded from the performance indicator. This activity must be reported directly as a component of net assets. 

In 2020, further guidance (ASU 2020-07) was issued to improve the accounting and reporting for nonfinancial assets as they relate to not for profit (NFP) organizations, specifically related to the amount received and used in an NFP’s programs and other activities. Nonfinancial assets include fixed assets (such as land, buildings, and equipment), use of fixed assets or utilities, materials and supplies, intangible assets, services, and unconditional promises of those assets. These are also often referred to as ‘gifts in kind’ or ‘in-kind donations.’ This guidance requires NFPs to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets. This does not supersede the requirement previously noted for healthcare providers to report contributions of, and cash received for, property, plant, and equipment outside of the performance indicator. 

Are there accounting policy options? 

FASB has issued guidance indicating that donor-restricted contributions whose restrictions are met within the same reporting period can be reported as unrestricted contributions in the financial statements. This guidance allows for this reporting if the organization also has a consistent policy for reporting investment gains and income (ASC 958-320-45-3) and discloses its accounting policy in the notes to the financial statements.  

If the restrictions on a donor-restricted contribution are fulfilled within the same accounting period that the contribution is received, the NFP can choose to report those funds as unrestricted contributions, rather than as a restricted contribution which is subsequently released. This policy should be consistently followed for all contributions. 

Have questions on how your organization should handle grants and contributions? 

Understanding the nuances of accounting for grants and contributions is crucial for accurate financial reporting. The guidance provided by the FASB helps clarify the distinctions between nonreciprocal transactions and exchange transactions, ensuring that organizations can properly recognize revenue and classify contributions. If you have any questions or need further assistance, please reach out to Anne Cloutier or your BNN advisor.