Net Assets Without Owners Equity
Nonprofits have no owners, so equity is replaced with Net Assets. Net assets are classified into two categories: Without Donor Restrictions and With Donor Restrictions. Revenue from contributions follows ASC 958 — unconditional promises to give are recognized as revenue when made.
Contribution Accounting
A donor pledges $100,000 to be paid over 2 years, restricted for building construction.
Year 1: Debit: Pledges Receivable $100,000
Credit: Contribution Revenue — With Donor Restrictions $100,000
When spent on the building:
Debit: Net Assets — With Donor Restrictions
Credit: Net Assets — Without Donor Restrictions
(This is called a reclassification — restrictions are released)
Key Nonprofit Statements
Statement of Financial Position (balance sheet), Statement of Activities (income statement), Statement of Cash Flows, and Statement of Functional Expenses (breaks costs into program vs. management and fundraising).