Introduction:
Nonprofit organizations receive many different types of revenues. Most nonprofit organizations organize fundraising events to raise money for operations or for specific programs. Usually, nonprofits have annual fundraising events to raise funds for general use.
These events could be mailing campaigns, marathons, golf events, dinners, galas, and other functions. Proceeds and expenses related to these events are reported in the unrestricted/general fund.
If the fundraising event is for a particular purpose or for some future purpose, then the money from the event goes into the restricted fund. However, fundraising expenses are reported on the statement of activities.
Fundraising expenses:
Expenses incurred to raise funds to come into the category of classified expenses in a non-profit entity. A few examples of fundraising expenses can include:
- Fundraising mailings,
- Fundraising events,
- And any salaries or wages paid to the employees or workers associated with these particular events.
Most donors look at the fundraising expenses to total expenses ratio to determine whether it is worth donating to the organization or not.
Nowadays, non-profits organizations are turning to such events more often for the purpose of fundraising. So as any other way of fund generation is reported, organizations must also be able to properly show the relevant revenues and expenses in their financial statements.
What is Statement of Activities?
Statement of Activities is a financial statement prepared by non-profit organizations where they report revenues, expenses, and changes in net assets. There are three types of expenses in a non-profit: program expenses, operating expenses, and fundraising expenses.
Fundraising expenses are a line item and they come into the category of classified expenses in a non-profit entity. The picture below shows these expenses are reported.
The Journal Entry for Fundraising Expenses:
| DR | CR | |
| Fundraising Expense | xx | |
| Cash | xx |
Fundraising expense includes the many direct and indirect costs incurred related to fundraiser events. These costs may include the cost of marketing for the event, printing costs for tickets and posters, mailings and postage, public relations costs, and allocated salaries and wages for the employees.
On the contrary, fundraising event revenue would include all the contributions received.
Understanding and Reporting of Fundraising:
There are some funds generated through fundraising events that must be reported on financial statements under categories other than fundraising expenses.
If the fundraiser event is a one-time or insignificant activity, any amounts can be reported as gross or net revenues or expenses on the Statement of Activities. The costs, when executing a fundraiser event, can be classified into two categories:
- Fundraising Expenses
- Direct Benefits To Donor
Direct benefits received by donors during a fundraiser are not to be reported under fundraising expenses. Instead, they are to be reported and shown as an exchange transaction for the fair value of any goods and services provided to the donor.
In order to show correct financial reporting of fundraising events, proper tracking of the transactions is necessary. So for example, an organization has decided to host a charity dinner.
To record revenues, they would have to keep a track of the number of tickets sold, the price paid for tickets, and the fair value as well as the cost of how the donor would benefit.
Example:
If 200 attendees paid $100 each for a dinner with a fair value of $40, the contribution revenue is $12,000 ([$100 – $40] ×200 tickets).
The exchange portion, which is to be deducted (as it’s a benefit the donor receives), is $8,000 ($40 × 200 tickets). $12,000 will be reported as a contribution received through the fundraiser event. Non-profits must have also incurred costs for arranging the dinner.
For example, the location where the event is held costs $3000, let’s assume the dinner costs the organization $30 per person. The cost of direct benefits that is received by donors is $3,000 ($30 ×100).
It’s important to realize that the total cost of direct benefits to donors won’t just include the cost of the dinner but other things like costs for facility rental and decorations.
However, the organization also incurred other expenses like printing costs for tickets of $100, wages paid to waiters of $3,500, and the cost of advertising and promotion of $2,000. All three expenses ($100+$2,000+$3,500) will be classified as fundraising expense and the following journal entry will be booked:
| DR | CR | |
| Fundraising Expense | $5,600 | |
| Cash | $5,600 |