Promises to Contribute Video - ExamPrep.ai CPA Review

Lesson: Promises to Contribute

In this lesson, Nick Palazzolo, CPA, dives into the accounting intricacies of promises to contribute and pledges, particularly within the context of not-for-profit organizations. He humorously kicks off by questioning the reliability of a grand monetary pledge made by an overenthusiastic student, using this scenario to distinguish between enforceable pledges and mere optimistic statements. Nick then delves into the nuances of recognizing unconditional promises versus conditional promises, illustrating this through practical examples. With a light-hearted tone, he explains how pledges should be recorded at fair value, and when certain pledges become receivable. He also clarifies the difference between conditions and donor restrictions, highlighting how each impacts the recognition of revenue. The lesson wraps up by discussing multi-year pledges and the accounting treatment for uncollectible pledges, drawing parallels to familiar concepts in corporate accounting such as allowance for doubtful accounts.

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Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Promises to contribute pledges. Now, these are a fun time. Let's say that as the students graduating university, right, senior year, last day senior year, go up to the president and say, oh, I'm going to make a million dollars and give you all a million dollars to the school. Technically, by definition that's a pledge, right? That's a pledge.

However, is that really an enforceable pledge? Is that really going to happen? That's not, not real, right? I mean, unless there's some real paperwork there, you can't say if the student's like, oh, I'm just going to give you a million dollars. Sure, great, sounds great in theory, but is that going to happen?

I'm going to say no, unless there's some real evidence behind it going to happen. So that would not be accounted for. Pledges are basically receivables. Think of these like accounts receivable, right? So a customer owes you money in corporate accounting, that's accounts receivable.

In this case, you don't owe them the money, but someone says they're going to give the not-for-profit some money. That's a pledge or a receivable. So unconditional promises, these are unconditional promises to give contribution recorded at fair value when the promises made. So let's say I'm a legitimate company and I say I'm going to give you a million dollars to this museum. There's backing behind it, right?

I'm not just some kind of sketchy company. I'm probably going to actually give you a million dollars. Well, I'm going to record that as an unconditional promise to give at a million dollars. And these might be written or verbal promises, right? Just depends.

That's not really going to be asked, but just for your knowledge, conditional promises, these might be okay, museum, I'll give you a million dollars if you let us use

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