Two net asset classes
Since ASU 2016-14, not-for-profit entities classify net assets into just two categories (down from three):
- Net assets without donor restrictions
- Net assets with donor restrictions (purpose-restricted, time-restricted, or restricted in perpetuity — e.g., a permanent endowment)
Contribution recognition
Unconditional contributions are recognized as revenue when received (or promised, for unconditional pledges), at fair value. Conditional contributions — where a barrier must be overcome and a right of return/release exists — are not recognized until the condition is substantially met.
EXAMPLE: A donor pledges $100,000 "if the organization raises a matching $100,000 from other sources by year-end." This is a conditional promise (the match is a measurable barrier) — no revenue is recognized until the matching funds are actually raised.
Required statements
NFPs present a Statement of Financial Position, a Statement of Activities (showing changes in each net asset class), a Statement of Cash Flows, and a Statement of Functional Expenses (breaking expenses into program, management & general, and fundraising categories) — either on the face of the statements or in the notes.
EXAM TIP: When a donor-restricted purpose is satisfied in the same period the contribution is received, the NFP may elect to report it directly in net assets without donor restrictions, avoiding a same-period reclassification.