Accounting for Year-End Gifts
It happens every year.
The fundraisers rock the year-end campaign, and the business office is flooded with gifts. Some are checks dated in the prior year, and others are sent with envelopes postdated in the current year. If your fiscal year end is December (and even if it's not), what's a nonprofit accountant to do?
It's important to remember the donor's deduction year does not have to correspond to the year you recognize the revenue. But with that being said there are some things your organization should do:
- No matter what your process is, make sure to document it. Like everything in accounting, proper documentation is crucial to proving your accountability.
- Be consistent. Create a process and stick to it. The documentation helps.
- Decide what to do with checks dated in the prior year with a postdate in the current year. Usually you want to give the donor credit for these in the prior tax year.
Earlier I said the business office does not have to recognize revenue in the same period the donor takes the tax deduction. But in most business offices, it's easier to maintain consistency so development and finance can stay on the same page. Booking revenue in the prior year for gifts with checks dated on or before Dec. 31 or that arrived in envelopes postdated on or before Dec. 31 keeps your fundraising and accounting systems in sync and makes for easier reconciliation.
This opens up another consideration. Where should this money reside on the balance sheet to facilitate reconciliation? Since it did not make it to the bank account by Dec. 31, it shouldn't be in the cash account you use for your bank. But you do want it in the "cash and cash equivalents" section of the balance sheet. It's not a receivable, so don't book it that way. I recommend using a "deposit in transit" account that is similar to cash but does not represent an actual bank account. Then, when you make the deposit, create an entry to debit cash (i.e., your bank account) and credit the deposit in transit account.