Nonprofit Accounting Basics

Revenue Recognition

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If you determine that your government grants are contributions, then you should follow the guidance in FASB116.

If you determine that the grant is an exchange transaction then the revenue would be recognized as earned. The determination as to when revenue is earned is dependent on the language in each specific grant. For example, if you have a cost-reimbursement grant (which is the most common) you would recognize grant revenue equal to the amount of allowable expenses you incurred. If your grant was for a fixed amount then you would recognize revenue under the percentage of completion method. Under this method you would recognize revenue based on the percentage of the project that has been completed. For example, if at year-end you have determined that your project was 75% complete you would then recognize 75% of the total project revenue at that date. The percentage completion is a somewhat subjective determination, that is often based on the project manager's estimation. The key factor is that you have a methodology in place for estimating the percentage of completion and that this methodology is followed consistently.