Accrual method required for pledges to tax-exempt organizations.

• Author: Gladstone, Debra L.
• Position: Brief Article

Financial Accounting Standard (FAS) 116, Accounting for Contributions Received and Contributions Made, requires exempt organizations to use the accrual method to account for pledged contributions. For organizations with assets of $5 million or more and $1 million or more in annual expenses, FAS 116 was effective for fiscal years beginning after Dec. 15, 1994. (For other organizations, it will be effective for years beginning after Dec. 15, 1995.) Before this FAS, an exempt organization could account for pledges on the cash method while using the accrual method for its other activities or, in other words, use a hybrid method. Adoption of FAS 116 is a change in accounting principle for financial statement purposes that may be applied retroactively or as a cumulative change adjustment.

Tax-exempt organizations desiring to file their tax returns on the same method used for financial statement purposes may now have to change their accounting method for tax purposes as a result of FAS 116. Rev. Proc. 92-75 provided specific procedures for making this change, without having to request the IRS National...