Nonprofit Accounting Basics

Government Grants

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Government grants are a common method for non-for-profit (NFP) organizations to obtain funding. Typically, these grants originate with the NFP submitting a proposal or responding to an RFP, to a governmental agency for specific funding. This proposal will often include a detail budget of how the grant funds are to be spent. As such, it is important that the NFP properly track and report its expenditures to ensure compliance with the grant agreement.

The NFP must also make the determination as to whether the government grant is a contribution or an exchange transaction. This determination is extremely important as the accounting treatment differs substantially depending on the classification. Revenue from grants that are classified as contributions are accounted for under Statement of Financial Account Standards 116 (FASB116), while revenue from grants classified as exchange transactions are recognized as earned.