January 23, 2024

Contributions: Understanding Different Reporting Needs

By Steve Marconi, Director, Assurance Services

Contributions: Understanding Different Reporting Needs Nonprofit & Social Sector

Nonprofits thrive on the generosity of donors and volunteers, with varying types of contributions that can play a role in advancing an organization’s mission and programs. Understanding different contributions and their respective reporting requirements is an essential aspect of nonprofit management.

One of the most straightforward methods of support is through monetary donations without donor-restrictions, such as a business that donates a portion of its profits to a local foodbank. This financial support offers the nonprofit flexibility in allocating funds where they are most needed, whether that’s for administrative costs, program development, or the food itself.

In-kind services are equally valuable, offering expertise and labor instead of cash. Consider a lawyer who provides legal counsel to a nonprofit organization focused on housing rights. By donating their time and legal acumen, the attorney assists the nonprofit in navigating complex regulations, drafting contracts, and representing them in disputes, all without charging fees. This invaluable legal support not only fortifies the nonprofit’s mission but also saves substantial costs that can be redirected to serve the community.

In these instances, the contributions characterize voluntary support given to further a nonprofit’s mission and funds its operations. They encompass a spectrum of generosity, from monetary donations to material gifts and services, all offered without any expectation of direct benefit. These contributions may come with donor-imposed restrictions that require their use within a specific program or make the funds available over a defined time frame. However the recipient organization maintains decision-making authority on how to use the funds within parameters set by the donor.

In contrast, contributions received without variance power come with specific recording rules that generally preclude the recipient organization from recording them as revenue. It’s useful to note that such contributions might also be referred to as an “agency transaction” or “funds held for others” in practice. No matter the term, managing these funds requires knowing the difference between a contribution with and without variance power.

Gaining clarity on these distinctions enhances financial reporting accuracy and ensures compliance with legal obligations, thereby fostering trust among stakeholders. Understanding agency transactions versus contributions helps nonprofits honor donor intentions and exhibit responsible resource management.

Recording agency transactions as contribution revenue can have serious ramifications on the organization. Incorrect treatment will cause the organization’s net assets to be misstated, which can change the perception of those who use the financial statements. The organization will put itself at risk for restatement of previously issued financial statements, which often result in management letters from external auditors.

For example, a national foundation provides an avenue for donors to contribute to the local chapters via the national foundation. A donor contributes $10,000 to the national foundation with instructions to provide the funds to a specific local chapter. In this case, there is a stated third-party beneficiary, and the national foundation has no discretion in determining where the funds are distributed. The contribution is a balance sheet only transaction for the national foundation and recorded as revenue by the stated local chapter.

Another frequent case of funds held for others occurs within nonprofits that grant scholarships. These organizations may allow donors to contribute funds for the nonprofit to hold until the donor provides further instruction regarding the recipient of the scholarship. In this case, while the nonprofit’s mission is to provide scholarships, because the ultimate recipient is determined by the donor, the nonprofit has no variance power and does not record the contributed funds on its statement of activities.

The below table summarizes some of the key differences between contribution revenue and contributions without variance power.


Voluntary Nature: Donors willingly offer contributions without an obligation or expectation of direct compensation.

No Expectation of Direct Return: Unlike exchange transactions, contributions lack a specific reciprocal benefit to the donor.

Varied Forms: Contributions extend beyond monetary donations, encompassing material goods and services.

Fiduciary Responsibility: The organization holds assets or resources on behalf of others and is legally obligated to manage them prudently.

Adherence to Donor Directives: The handling of contributions held for others aligns with specific donor-stipulated conditions or objectives.

Formal Agreements or Trust Arrangements: Often, legal contracts or trusts govern these arrangements, outlining responsibilities and restrictions.


Charitable Donations: Monetary contributions made to support a cause or organization.

Philanthropic Gifts: Generous contributions aimed at fostering societal or communal betterment.

In-kind Services: Non-monetary assistance, such as pro-bono work, provided to support a nonprofit’s mission.

Funds Held in Trust: Resources earmarked for a specific purpose without variance power of the holding organization, managed by the organization on behalf of the beneficiary or donor.

Project-specific Resources: Contributions designated for particular initiatives, with explicit instructions for their utilization.

USE & CONTROL Nonprofits have discretion over their use. The donor maintains full discretion on use of funds.

Download contributions table

Understanding these distinctions isn’t just about financial technicalities; it’s about doing right by the donors and the mission. It’s about transparency, accountability, and showing that the trust placed in the nonprofit is valued. By decoding these differences, nonprofits honor their commitments, build stronger donor relationships, and ensure that their financial practices support their future impact.