What criteria must be met for cash contributions to be recognized as revenue in NFP accounting?

• A. They must be received in cash
• B. They must be unconditional and measured at fair value
• C. They must be made by a donor with no restrictions
• D. They must be approved by the board of directors

Answer: (B)

In non-profit (NFP) accounting, for cash contributions to be recognized as revenue, they must be unconditional and measured at fair value. This means that the contribution does not have any terms or conditions attached that would prevent the NFP from using the funds immediately, which is a critical aspect of revenue recognition under the Financial Accounting Standards Board (FASB) guidelines.

Additionally, measuring the contribution at fair value ensures that the recognized revenue reflects the true economic benefit received by the organization at the time of the contribution. This aligns with the accounting principle of recognizing revenues that are realizable and earned during the reporting period.

While cash contributions must indeed be received in cash, just receiving cash alone does not meet the criteria for revenue recognition without also considering the conditions attached to that cash. Contributions may also come from donors who impose restrictions on their use, which could affect their recognition in the financial statements. Therefore, it’s the combination of being unconditional and at fair value that ultimately qualifies them as recognized revenue.