Promise to give definition

What is a Promise to Give?

A promise to give is an agreement to give cash or other assets to a third party. The donor then has an obligation to complete the transaction, while the recipient has an expectation of receipt. There are two types of promise, which are the conditional and unconditional promise. The accounting for them is noted below.

Accounting for a Conditional Promise

If a contributor makes a contribution that is a conditional promise to give, only recognize the asset when the underlying conditions have been substantially met. Depending on the circumstances, this may not occur for a substantial period of time, if ever.

Accounting for an Unconditional Promise

If a donor makes a contribution that is an unconditional promise to give, you can recognize the contribution when received. This calls for sufficient verifiable documentation that the promise was both made and received. The promise should be legally enforceable. If a contributor is able to rescind the promise to give, do not recognize the asset being contributed.

Example of a Promise to Give

Newton Enterprises receives an offer from a contributor to pay $2 million for a new classroom building, but only if Newton can raise matching funds from other contributors within one year. Given the conditional nature of this offer, Newton cannot record the asset until the matching funds have been raised within the specified time period.

Related AccountingTools Courses

Auditing Nonprofit Entities

Nonprofit Accounting