Topic 606 applies to contracts with customers. The term customer is defined as a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. A contribution is, by definition, a nonreciprocal transfer. A contribution is not given in exchange for goods or services that are an output of the entity’s ordinary activities. Therefore, the FASB staff interpretation is that a contribution is not within the scope of Topic 606.

Furthermore, paragraph BC28 of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), explains that revenue from transactions or events that do not arise from a contract with a customer is not within the scope of Topic 606, and, therefore, those transactions or events will continue to be recognized in accordance with other Topics. The paragraph lists donations and contributions as examples of nonexchange transactions not within the scope of Topic 606.

In conjunction with the issuance of Topic 606, many conforming amendments were made to the Codification, including amendments to Subtopic 958-605, Not-for-Profit-Entities—Revenue Recognition (renamed Not-for-Profit-Entities—Revenue Recognition—Contributions). Paragraph 497 of the conforming amendments (which describes amendments to Subtopic 958-605) states:

It is important to note that a not-for-profit entity might enter into transactions other than contributions, such as exchange transactions. A not-for-profit entity should evaluate whether transactions that are not contributions are within the scope of Topic 606. Some staff highlighted that a not-for-profit organization may have arrangements in which amounts received could relate to both a contribution and a good or a service. In those cases, an entity would need to evaluate the facts and circumstances to determine the nature of the arrangement.

In determining whether a transaction is within the scope of the revenue model, the FASB staff thinks it might be helpful for entities to evaluate whether the 5-step model practically could be applied to the transaction. For example, if an entity cannot identify promised goods or services to the customer in Step 2 of the model or cannot determine if (or when) control of those promised goods or services transfers in Step 5 of the model, then those facts might be indications that the transaction is not an exchange transaction with a customer.