Nonprofit Accounting Basics

Accounting for Special Events

Author: 

Dan Weaver, CPA

Councilor, Buchanan and Mitchell, P.C.

Many special events, such as dinners, galas, auctions, and walk-a-thons, are organized to raise contributions to support the organization’s activities. The participants of these events are offered something of value (a meal, theater ticket, entertainment) for a sum that exceeds the costs of the benefits provided to the participants. The difference between the amount paid by the donor and the fair value of the benefit received by the donor is considered a contribution. The items of value given to the donor in this situation are referred to as “Direct Benefits to Donors.” These are the actual costs of the items and services furnished to the attendees as inducements to attend the special event (dinner, ballroom, decorations, meals, and refreshments, etc.). These costs are program costs and should not be classified as fund-raising expenses in the nonprofit’s financial statements. The AICPA gives three options for reporting these benefits:

  • Option 1 - Present the Costs of Direct Benefits to Donors as a line item deducted from special event gross revenues on the Statement of Activities.
  • Option 2 - Present Special Event Gross Revenues in the revenue section of the Statement of Activities and Costs of Direct Benefits to Donors in the Statement of Functional Expenses with other programs and supporting services.
  • Option 3 - Present the contribution portion as contribution revenue and the exchange portion (fair value received by donor) as special events revenue. The Costs of Direct Benefits to Donors are deducted from the exchange portion of the gross revenue.

In order to properly report the activities of these events, a number of transactions need to be recorded for each event: For revenue: the number of tickets sold to an event as well as the price being paid by the donor. For example: The nonprofit holds a gala. Patrons pay $250 to attend the dinner and 100 tickets have been sold. The dinner costs the nonprofit $50 per person and has a fair value of $75 per person. Thus, the contribution portion of the special event is $17,500 [100 tickets * ($250 - $75)] and the exchange portion is $7,500 (100 * $75). In this example, it would be beneficial for the nonprofit to track and record the number of attendees, ticket price, and fair value of the event. If a separate organization holds a special event to benefit the nonprofit, the net proceeds from the event are reported by the nonprofit as contribution revenue unless the nonprofit participates in the planning and execution of the event, in which case it is reported as in the example above. For expenses: Using the example above, the Costs of Direct Benefits to Donors would be $5,000 ($50 * 100 attendees). For most events, calculating the Costs of Direct Benefits to Donors will include more than just the cost of the meal. The costs will also include the catering, ballroom, decorations, meals and refreshments, etc. For this reason, it would be beneficial to have different accounts for Special Event Fund-Raising Expenses and Costs of Direct Benefits to Donors. Any remaining expenses (such as the expenses of promoting and conducting the special event) are reported as fundraising expenses. Thus, expenses for printing tickets and posters, mailings, fees for public relations, reasonably allocated costs for employees’ time, and other expenses incurred by the organization are reported as fund-raising expenses. If there is no charge to attend the event, all the event’s expenses are recorded in fund-raising expenses. In-kind contributions: For each special event there could be three types of in-kind contributions that are documented:

  1. Auctioned items: If an item is donated to the nonprofit and auctioned off, the nonprofit records two separate transactions. The nonprofit should determine the fair value of the donated item and record this as contribution revenue. Once the item is auctioned off, the contribution is adjusted up or down based on the amount that was ultimately received by the nonprofit. (Note: It is important to have the fair value and final amount received in the auction for tax purposes. The IRS handles this transaction differently.)
  2. Items provided to the donor: In many events, items will be donated and provided to the various attendees of the event. The revenues are a contribution to the organization and the expense is included in Costs of Direct Benefits to Donors.
  3. Donated services or facilities: Certain services or facilities that are donated to the organization may need to be reflected as Costs of Direct Benefits to Donors, while others may need to be reflected as fund-raising costs of the event. The ultimate determination is based on whether or not the donor receives a benefit from the donation.