Which statement best describes recognizing conditional pledges under FASB?

Which statement best describes recognizing conditional pledges under FASB?

• A. Pledges are recognized as revenue when the pledge is made.
• B. Pledges with conditions are recognized as revenue when cash is received.
• C. Pledges with conditions are not recognized until conditions are substantially met.
• D. Pledges are never recognized as revenue.

Answer: (C)

The main idea here is how conditional promises from donors are treated under FASB for nonprofit organizations. If a donor attaches a condition to a pledge, that promise isn’t considered unconditional, so revenue isn’t recognized until the condition is substantially met. This prevents counting revenue for funds that may not be received or used as intended until the condition is satisfied. Once the condition is substantially met, the pledge becomes unconditional and revenue is recognized, with any donor-imposed restrictions tracked accordingly. This approach differs from recognizing revenue at the pledge date or upon cash receipt, and it’s not correct to say pledges with conditions are never revenue.

The main idea here is how conditional promises from donors are treated under FASB for nonprofit organizations. If a donor attaches a condition to a pledge, that promise isn’t considered unconditional, so revenue isn’t recognized until the condition is substantially met. This prevents counting revenue for funds that may not be received or used as intended until the condition is satisfied. Once the condition is substantially met, the pledge becomes unconditional and revenue is recognized, with any donor-imposed restrictions tracked accordingly.

This approach differs from recognizing revenue at the pledge date or upon cash receipt, and it’s not correct to say pledges with conditions are never revenue.