Gift Pledge Accounting
The purpose of this procedure is document the procedures used by the Development Office and the Finance Division to record Gift Pledge revenues and receivables, to classify receivables as Current or Non-current, and to provide an Allowance for Doubtful Gift Pledge Receivables.
This document describes the process of recording gift pledges in accordance with UT System guidelines and GASB 33 guidelines.
3.0 DEFINITIONS/OVERVIEW (per U.T. System BPM Accounting Policies 71.2)
GASB Statement No. 33
Accounting and Financial reporting for Nonexchange Transactions - was issued December 1998. The Statement establishes accounting and financial reporting standards that address when to report nonexchange transactions, including Gift Pledges.
Described as voluntary nonexchange transactions that result from legislative or contractual agreements entered into willingly by two or more parties (i.e., certain grants or private gifts and donations).
A gift is defined as a voluntary transfer of items of value, usually in the form of cash, checks, securities, real or personal property. Gifts may come from individuals, corporations, foundations and other sources; recipients can use them for unrestricted or restricted purposes. Recipients make no commitment of services or resources in return for gifts, other than possibly agreeing to put the gift to use as the donor designates.
The following characteristics describe a gift:
- 1. No contractual requirements are imposed and there are no "deliverables" to the donor. However, the gift may be accompanied by an agreement that restricts the use of the funds to a particular purpose. Gifts are often evidenced by pledge agreements, letters of intent, pledge cards, notations on donor checks and acknowledgement correspondence.
- A gift is typically irrevocable. While the gift may be intended for use within a certain timeframe, there is no specified "period of performance" or "start" or "stop" dates as associated with Sponsored Programs.
- There is no formal fiscal accountability to the donor beyond progress reports and summary reports of expenditures, often thought of as good stewardship.
If the donor makes stipulations that must be met before a gift transaction can occur, such as evidence of intent to purchase a building, then a liability to contribute the gift has not occurred until such conditions are satisfied. No revenue/receivable recognition will be made until the stipulation is satisfied (any payment in advance should be credited as a Deferred Revenue).
Material (face value of $5000 or greater) unconditional gift pledges must be included in the financial statements. Unconditional gift pledges should be recorded in G/L accounts when the pledge is accepted, is verifiable, measurable and is probable to collect.
When an unconditional gift pledge is received or a conditional gift pledge has been met, the Development Office should communicate this to the Controllers office which should record the pledge at its net present value, a debit to Gift Pledges Receivable and a credit to Gift Pledge Revenue. When the gift pledge is collected, debit Cash and credit Gift Pledge Receivable and "Additional" Gift Pledge Revenue.
Gift Pledges extending beyond one year must be properly valued using time value of money techniques. Annually in early September, UT System advises components of the interest rate(s) applicable for new pledges to be recorded in that fiscal year, based upon yields as listed in the "Wall Street Journal."
Allowance for Doubtful Gifts - The Finance Division with input from the Development Office will determine an allowance factor for uncollectible pledges. The provision may be calculated by (1) applying an average percentage of historical gift pledge write-offs, or (2) applying an appropriate percentage to aged receivable balances. Adjustments to the pledge receivable are offset by corresponding adjustments to the Gift Pledge Revenue account.
The Development Office makes the determination as to what constitutes a gift and a gift pledge. A monthly Gift Pledge report is prepared listing each gift pledge and showing face value amounts and installment dates, payment amounts/dates, and balance. This report is provided to the Finance Division prior to the monthly accounting close date. Endowment pledges are included and are marked accordingly, but the Finance Division excludes endowment pledges from gift pledge accounting per GASB 33 and U.T. System guidance. New pledges in the month are highlighted as well as payments received in the month. If a decision has been made that a pledge will not be received in the future and that it will be dropped from the report, then that information is included also.
The Finance Division maintains an Excel spreadsheet report for gift pledges. Discount rates to determine net present value of future installments for new pledges in the fiscal year are provided each September by System and these are listed on the spreadsheet. Gift pledges are listed by the year in which they originate and the appropriate discount rates are used for net present value. Basic calculations are made and then net present values are carried into columns that summarize data by future year. In order to balance with the Development Office Gift Pledge report, endowment pledge face value amounts are listed at the top, and a total face value on the Finance Division report is calculated and then compared to the Development Office report. New pledges for the month are added. Any payments are entered as a reduction in the face value/net present value of the next installment. The remaining face value balance of each pledge should agree with the balance on the Development Office report. An Allowance for Doubtful Receivables percentage factor is applied to total net present values. Columnar totals by future year allow for determining the Current and Non-current amounts for both Gift Pledge Receivables and the Allowances. This Finance Division spreadsheet is updated and adjusting accounting entries are made if significant material pledge activity has occurred.
The Allowance for Doubtful Pledges Receivable factor is determined once a year, normally in August. The Finance Division meets with the Associate Vice President for Finance and with the Development Office to review the questionable pledges, the history of failed pledges, and to agree on a percentage factor to be used for the current fiscal year/AFR. The agreed rate is applied equally to all future year installment balances.
Gift pledge entries are made to the following accounts:
- S/L account 0610, Gift Pledge Revenue
- G/L account 1384, Gift Pledge Receivables - Current
- G/L account 1389, Allowance for Doubtful Gift Pledge Receivables, Current (credit) balance
- G/L account 1484, Gift Pledge Receivables - Non-current
- G/L account 1499, Allowance for Doubtful Gift Pledge Receivables, Non-current (credit) balance
Account 0610 is the offset to all adjustments to the Receivables/Doubtful accounts.
When significant activity has occurred and pledge activity is to be recorded, all calculations as to current and non-current receivables and allowances will be made and will be recorded, with Gift Pledge Revenue being adjusted accordingly. All adjustments are to the prior month's balances which must be entered to the worksheet from FINS (FBM094 G/L).
Responsibilities are as described above.
- GASB 33, Accounting and Financial Reporting for Nonexchange Transactions (December 1998)
- U.T. System Business Procedures Memorandum Accounting Policies 71.2 for Accounting and Financial Reporting for Nonexchange Transactions
- Development Office Monthly Gift Pledge Report
- Finance Division Excel Spreadsheet for Gift Pledges
Last Updated: August 8, 2012