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Should Government Grants and Contracts be treated as Earned or Contributed Revenue?

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There has long been some grey area and confusion around how nonprofits should account for government grants and contracts, especially those for which the organization has to submit receipts in order to receive reimbursement. Sometimes, despite being contractual relationships, these were treated as contributions, but more often, because these were seen as what's known in the accounting world as exchange transactions, these were treated as earned revenue. Recently, the Financial Accounting Standards Board (FASB) has clarified the accounting treatment of these contractual relationships with the government.

According to the clarified rules, because the government is not getting a direct benefit from the nonprofit's activities, contracts with government agencies should be treated as contributions, rather than earned revenue. However, because many of these contracts operate on a reimbursement principle, instead of recording the government contribution revenue all at once when the contract is received the way you would with a foundation contribution, the government money is conditional and should only be recorded as revenue once receipts are submitted and payments received.

If you have questions about how your government grants and contracts should be treated in your accounting system, always consult with a CPA.

To read the updated FASB standard, Not-for-Profit Entities (Topic 958), Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, visit:



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