Per FASB Standard 116, a promise to give (commonly known as a “pledge” or “contribution”) is a written or oral agreement to contribute cash or other assets to another entity. However, to be recognized in financial statements, there must be sufficient evidence in the form of verifiable documentation that a promise was made and received. A communication that indicates an unconditional intention to give is legally enforceable.

A pledge, or promise to give, is an agreement between a donor and the organization where the donor promises to contribute cash or other assets to the organization. While that sounds simple enough, it is important to understand there are some basic criteria a pledge must meet for the accounting department to record the pledge as revenue. The two basic criteria are (1) ensuring that the donor has made a firm commitment and (2) that the pledge is unconditional.

Pledges receivable, although intended for endowment in perpetuity, are NOT considered contributions to an endowment fund until realized and added to the investment pool.

For a pledge to be realized and revenue recognized, a pledge representing an unconditional promise to pay must be received and all eligibility requirements, including time requirements, must be met. Pledges for permanent endowments do not meet eligibility requirements as defined by Governmental Accounting Standards, and are not recorded as assets until the related payments are received.

Contributions received shall be recognized as revenues in the period received and shall be measured at their fair values.

Additional resources:

FAS116 Summary:

RSM McGladrey: Accounting and reporting for endowment funds