The world of nonprofit finance differs significantly from standard business accounting and capital structure. Nonprofit organizations work with limited incomes and receive revenue from different sources than do companies. Earned revenue and contributed revenue comprise the two types of capital available to nonprofit organizations. These revenue types are fundamentally different in nature. Contributions constitute a form of capital unique to nonprofit enterprises, while any business can generate earned income.
Basically, earned income constitutes any capital generated in exchange for services. Nonprofit organizations generate earned capital through gift shops, admission fees and other sales. Nonprofit theaters, for instance, generate earned revenue by selling tickets to shows, while nonprofit museums generate earned revenue through admission fees and the sale of books, postcards, posters and other merchandise. Grants that stipulate a return of service for the money awarded also technically qualify as a form of earned income.
A contribution constitutes anything given without condition. The form contributions assume runs the gamut from donated assets like clothes, equipment or cars to cash donations, endowments and forgiveness from liabilities like loan debt. Registered nonprofit organizations offer the benefit of tax-deductible donations, meaning you can deduct the value of any contribution you give from your annual income for tax purposes. Grants given without condition, and those given for the purpose of establishing more grants through the grant recipient, constitute contributions.
When accountants create financial books for nonprofit organizations, revenue falls into one of two categories: earned revenue and contributed revenue. Contributed revenue comprises all accumulated contributions and constitutes the true counterpoint to earned revenue. In analogous terms, a contribution is to contributed revenue what the money earned from the sale of a single theater ticket is to earned revenue. Nonprofit organizations amass contributed revenue by soliciting contributions through events, mailings, online campaigns and even, in some instances, mobile giving drives.
Earned Revenue and Contributions
The fundamental difference between earned revenue and contributions lies in the expectation of the giver. If you give money in exchange for a theater ticket or museum admittance, you expect a reciprocal relationship, through which you receive something in return for your money. If you make a contribution, you expect no return of services in exchange for that money. On a less fundamental level, earned revenue constitutes the accumulation of all earned capital, while contributions constitute individual gifts.
- Great Lakes Historical Society: Ways to Give
- “Encyclopedia of Public Administration and Public Policy”; Jack Rabin; 2005
- “The Art of the Turnaround: Creating and Maintaining Healthy Arts Organizations”; Michael M. Kaiser; 2010
- “Performing Arts Management: A Handbook of Professional Practices”; Tobie S. Stein, et al.; 2008
- Beta Alpha Psi: Special Issues Relating to Implementation of FASB Statements 116, 117, and 124
- Global Impact Investing Network: Contributed Revenue
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