Accounting and Reporting for Not-for-Profit Organizations

Case Study 6

Contribution Versus Exchange Transactions

Learning objectives

• Identify the differences between exchange transactions and contributions.
• Determine how to recognize exchange transactions.

Background

FASB states a contribution is “an unconditional transfer of cash or other assets, as well as unconditional promises to give, to an entity or a reduction, settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner.”

Contributions are by definition non-exchange transactions. When a contribution is promised or received, the not-for-profit (NFP) would debit cash (or asset) and credit contribution revenue. In a non-exchange transaction, the donor does not receive something of equal value for the contribution. Some exceptions to the nonreciprocal contribution treatment include investments or distributions to owners and non-voluntary transfers, including fines and imposed taxes. Although they are not reciprocal, they are either transactions with owners or not voluntary.

FASB defines an exchange transaction as “a reciprocal transfer between two entities that results in one of the entities acquiring assets or services or satisfying liabilities by surrendering other assets or services or incurring other obligations.” In exchange transactions, each party receives and sacrifices of approximately commensurate value. Exchange transactions are not contributions. Purchasing an item from a museum store or buying ...