Views from the Audit Trail — Accounting for Temporary Donor Restrictions

Article Excerpt:

As auditors and advisors, we have a unique vantage point that allows us to identify accounting and financial reporting issues that are, at times, misunderstood by our clients. One issue that warrants further thought and consideration is the accounting for certain aspects of temporarily restricted net assets.

Purpose and Time Restricted Donations

Temporary donor restrictions can be classified in two broad groups: as having either a purpose restriction or a time restriction. A donor may contribute an amount to fund a specific program or purchase, making the gift purpose restricted. Another donor may pledge a contribution to be paid over three years without a purpose restriction. Accordingly, the amounts scheduled to be collected by the entity in the second and third year are considered time restricted.