How to Report Gross Vs. Net Revenue for a Not-for-Profit

A not-for-profit organization's primary mission is to serve the community. Nonprofits follow generally accepted accounting principles for recognizing revenues, such as donations, membership dues, fundraising drives and investment income. Accounting standards require nonprofits to report gross revenues and expenses. Nonprofits report revenues and expenses on the statement of activities. Some nonprofits, however, report net revenues by subtracting the fundraising and related expenses from the gross revenues. According to Harvard University professor Elizabeth K. Keating and her colleagues, this can skew financial ratios and make a not-for-profit's operational efficiencies appear better than they actually are.

Instructions

1. Compute the gross revenue from a fundraising campaign. This is the sum of all cash, credit card and check donations. Nonprofits, such as community hospitals and advocacy groups, periodically conduct telemarketing campaigns, telethons and other fundraising events. The annual United Way campaign, for example, raises funds through dozens of events scattered over a four- to five-month period. Do not count pledges as donations until you receive the pledged amount in cash or check.

2. Record the expenses associated with the fundraising campaigns. These expenses could include telemarketing fees, fees for professional fundraising consultants, transportation, telecommunications and other miscellaneous expenses.

3. Subtract expenses from gross revenue to calculate the net revenue. For example, if a cancer foundation received $10,000 in donations from a telemarketing campaign, but had telemarketing expenses of $2,500, the net revenue is $7,500 ($10,000 minus $2,500).

4. Report the gross revenue, expenses and net revenue on the statement of financial activities, which includes separate columns for unrestricted contributions, temporarily-restricted contributions and permanently-restricted contributions. Unrestricted contributions, such as donations and general operating funds, are available for use at the board's discretion. Donors usually designate temporarily restricted contributions for specific activities. Nonprofits cannot spend the principal amount of permanently restricted contributions, such as endowments, but can spend the proceeds, such as interest income or capital gains.

References

• AccountingCoach; Nonprofit (Not-for-Profit) Accounting -- Financial Statements of Nonprofits; Harold Averkamp
• Harvard University Hauser Center for Nonprofit Organizations; Misreporting Fundraising: How do Nonprofit Organizations Account for Telemarketing Campaigns?; Elizabeth K. Keating, et al; December 2006