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6.2 Distinguishing characteristics of contributions
Publication date: 27 May 2020
us NFP guide
For accounting purposes, a contribution is defined in the ASC Master Glossary.
Excerpt from ASC Master Glossary
Contribution
An unconditional transfer of cash or other assets, as well as unconditional promises to give, to an entity or a reduction, settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner. Those characteristics distinguish contributions from a) exchange transactions, which are reciprocal transfers in which each party receives and sacrifices approximately commensurate value; b) investments by owners and distributions to owners, which are nonreciprocal transfers between an entity and its owners; and from c) other nonreciprocal transfers, such as impositions of taxes or legal judgments, fines, and thefts, which are not voluntary transfers.
In a contribution transaction, the resource provider often receives value indirectly by providing a societal benefit although that benefit is not considered to be of commensurate value. In an exchange transaction, the potential public benefits are secondary to the potential direct benefits to the resource provider.
The essential elements of the definition are:
- The transfer is nonreciprocal or non-exchange; that is, the resource provider makes a “one way” transfer of assets or services to the recipient, with nothing expected in return. This characteristic distinguishes a contribution from a reciprocal (or exchange) transaction, in which an exchange of commensurate value takes place between the parties. Considerations when distinguishing a nonreciprocal transfer from an exchange transaction are discussed in NP 12.
- The transfer is voluntarily made by the donor. This characteristic distinguishes contributions from nonreciprocal transfers that are imposed by taxes, fines, penalties, court judgments, or theft.
- The resource provider is not acting as an owner or potential owner. This distinguishes contributions from nonreciprocal transfers of a capital nature, such as equity transfers. An equity transfer is a nonreciprocal transfer of resources between two not-for-profits that are members of the same financial reporting entity. In some ways, equity transfers function as the not-for-profit counterpart of transfers of capital that occur between a business entity and its owners (for example, additional paid-in capital or payment of dividends). See NP 3.4.8.1 for discussion of equity transfers. For similar reasons, some transfers made in connection with or in contemplation of an acquisition of an NFP are not contributions. See NP 5 for a discussion of consolidation and combinations.
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