Not-for-profit
The Pledge Test
Unconditional pledges are revenue now, discounted if long-term; conditional pledges wait as refundable advances until the barrier falls.
How the exam words it
- -The stem asks 'when should the NFP recognize the contribution revenue?' for a pledge payable later.
- -A grant has a matching requirement or performance target ('if you raise a matching $500,000') and it asks how much revenue to recognize.
- -Cash arrives before a condition is met and it asks how the receipt 'should be recorded', hinting at a refundable advance.
- -A multi-year pledge gives PV factors and asks for Year 1 contribution revenue.
The playbook
- 1Separate condition from restriction: a condition has a measurable barrier plus a right of return; a restriction only limits how the money is used.
- 2Unconditional pledges are revenue when promised, even if payable in future years; conditional pledges are recognized only when the barrier is substantially met.
- 3Cash received before the condition is met is a refundable advance (liability); a mere intention to give, like naming the NFP in a will, is never recognized.
- 4Discount multi-year pledges to present value, record them net of estimated uncollectible amounts, and classify future-year pledges with donor restrictions (time).
The trap
Recognizing a conditional pledge as revenue when received. Until the barrier is substantially met, cash received is a refundable advance and an unpaid promise is nothing at all.
How the exam varies it
The same pattern, re-skinned along these axes:
Conditional versus unconditional versus a mere intentionShort-term versus multi-year (present value)Cash received versus promise only
Drill this pattern
8 questions of The Pledge Test from across the AUD topics. Clear it by getting 5 right with a streak of 3.