Conditional Promise to Give
A conditional promise to give is a commitment by a donor to contribute assets or funds to a nonprofit organization or a beneficiary, subject to the fulfillment of specific conditions or requirements. In other words, the donor pledges a donation, but the recipient organization will only receive the donation if certain predetermined conditions are met.
These conditions may include the achievement of specific goals, the occurrence of a particular event, or the completion of a specific project. Conditional promises to give can provide motivation for the recipient organization to work towards the set goals or objectives, as their funding is dependent on meeting these conditions.
Conditional promises to give are treated differently from unconditional promises in accounting for nonprofit organizations. Unconditional promises are recognized as revenue when the pledge is made, whereas conditional promises are only recognized as revenue when the stipulated conditions have been satisfied, and the organization becomes entitled to the funds.
Example of a Conditional Promise to Give
Let’s consider a hypothetical example of a conditional promise to give involving a donor and a nonprofit organization.
Save the Forest Foundation, a nonprofit organization, is working on a reforestation project in a specific region. They need to raise $100,000 to fund the project. A generous donor, Mr. Green, is interested in supporting the cause and pledges a conditional donation of $50,000.
The condition attached to Mr. Green’s promise to give is that Save the Forest Foundation must raise the remaining $50,000 from other donors or funding sources within three months. If the organization is unable to raise the required amount within the specified time frame, Mr. Green’s donation will not be granted.
Save the Forest Foundation starts a fundraising campaign, and over the next three months, they successfully raise $52,000 from other donors. Since the organization has met the condition set by Mr. Green, they become entitled to receive the $50,000 donation he had pledged.
In this example, Mr. Green’s conditional promise to give served as an incentive for Save the Forest Foundation to actively seek additional funding sources and reach their fundraising goal. Once the condition was satisfied, Mr. Green’s donation was granted, and the organization was able to fund their reforestation project.