Differentiation Between Grant & Contribution Accounting

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Accounting for grants and contributions differs in some areas.
Accounting for grants and contributions differs in some areas. (Image: Jupiterimages/Photos.com/Getty Images)

Nonprofit organizations receive many types of donations. Government entities and foundations often award grants to nonprofits, while individuals and businesses give contributions, also known as gifts or donations. Differences in accounting treatment of grants and contributions may not be readily apparent, but they exist.

Different Basis

Grant accounting is based on the grantor's rules, not necessarily the generally accepted accounting principles that are used for contributions. In the case of federal government grants, the U.S. Office of Management and Budget issues guidance in the form of circulars, such as Circular 122, "Cost Principles for Non-Profit Organizations." While a nonprofit has a contract and a budget with a grantor, contributors usually don't require any specialized cost analysis or reports.

Timing

Grants may be valid for more than one year. This situation creates the need for data to be accumulated for longer than the usual accounting cycle. General contributions follow the regular accounting cycle by closing after 12 months, with a few exceptions. Grants may start and end at different months than regular accounting schedules, which can be confusing. Many large organizations use a special grant module that interfaces with the accounting system to help out with grant management and reporting.

Reporting

Accountants prepare grant reports at least once a year. Grants usually involve large amounts of money over a long period of time, while contributions often are for smaller amounts with no reporting requirements. Grant reporting uses concepts such as direct and indirect costs that are not used in contribution accounting.

Other Differences

Grantors may audit recipients of funding, while donors almost never audit contributions formally. Grantors may also have clauses in contracts requesting refunds if monies are not fully spent. This situation doesn't normally occur with contributions. Another difference is that equipment and other assets purchased with grants are likely to belong to the grantor and not to the nonprofit. This can create an additional burden to the organization, because it must maintain the asset in accordance with certain standards. Contributors normally don't own assets purchased by the organization.

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