When are unconditional promises (pledges) recognized as revenue for NFP organizations?

Unconditional promises, or pledges, are recognized as revenue for not-for-profit (NFP) organizations when they are made, with the amount presented at fair value if they are expected to be received in the future. This means that the revenue is recognized at the time the promise is made rather than when cash is actually received.

The reason fair value is significant here is due to the fact that pledges may not be collected immediately and could involve a series of cash flows. Recognizing the promise at its fair value captures the present worth of the future cash inflows that the organization anticipates receiving. This is pertinent for financial reporting purposes, particularly because it reflects the economic reality of the organization's fundraising activities.

Recognizing revenue at the time cash is received or when conditions are met would not accurately reflect the pledge's value as a resource that the organization can utilize, even if the cash is not yet in hand. Therefore, unconditional pledges become part of the revenue calculation at the point that they are pledged and measured at their fair value.