Accounting for Grant Restrictions and Grant Conditions

Being awarded a new grant is exciting news for any organization, but properly accounting for grant restrictions and conditions is essential to the accurate financial reporting of any organization. Here is what you need to consider:

Are there performance barriers that need to be overcome prior to receiving the funds? Or if the funding is received in advance, are there return (claw-back) provisions if certain conditions are not met? If so, the grant is most likely conditional, and revenues would be recognized as the conditions are met. Any funds received in advance of meeting conditions would be recorded as refundable advances. Absent any conditions, unconditional grants are recognized as revenues when the written unconditional promise to give is received (in most cases the letter of award).

There is a chance that unconditional grants may contain embedded restrictions limiting the use of the funds. A restriction differs from a condition as there is not a specific performance barrier or right of return but rather an overall specified purpose (or time period) restricting the use of the funds. Restricted grants are still recorded as revenues when the written unconditional promise to give is received, however, they are presented as net assets with donor restrictions until used for the restricted purpose (or specific time period has passed).