When a not-for-profit organization (NFP) receives a donor restricted gift to purchase a capitalizable asset there is generally confusion over the appropriate treatment. It would seem reasonable to match the gift with the expense in the period that the cash was expended, but that is not the correct treatment in accordance with generally accepted accounting principles.
A NFP should look to the two transactions separately, recognizing the gift and the expense. Following the rules governing donor restricted gifts, the NFP should recognize the gift in the period when it has been awarded, received or otherwise confirmed in accordance with the policies adopted by the organization. Organizational policy may also dictate whether the gift is automatically recorded as temporarily restricted or unrestricted. If the funds will be appropriated during the same reporting period, the funds may be recorded as unrestricted. The release of funds will follow the organization’s policy with respect to approval for appropriation which ensures that there is a process to review if the donor restriction has been met.