A NFP receives a cash donation of $50,000 in Year 1 restricted for a specific research project. In Year 2, the NFP spends the $50,000 on the project. How is this reported in Year 2?

Answer options:

Recognize Revenue with Donor Restrictions.

Reclassify $50,000 from Net Assets With Donor Restrictions to Without Donor Restrictions.

Recognize Revenue without Donor Restrictions.

Record an expense only, no equity impact.

How to approach this question

Timeline: Year 1 (Receive) -> Dr Cash, Cr Contribution Revenue (With Restriction). Year 2 (Spend) -> 1. Dr Satisfaction of Restriction (With), Cr Satisfaction (Without). 2. Dr Expense, Cr Cash.

Full Answer

B.Reclassify $50,000 from Net Assets With Donor Restrictions to Without Donor Restrictions.✓ Correct

When a donor restriction is satisfied (by spending the funds for the specific purpose), the entity reclassifies the net assets from 'With Donor Restrictions' to 'Without Donor Restrictions'.

Common mistakes

Recognizing revenue again in Year 2.

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