On nonprofit financial statements, there are three different types of income that should be considered: revenue, support, and other changes. While these terms may sound interchangeable, they are actually quite different and it’s important to use the correct language in defining them.
Revenue
Most people tend to think of “revenue” as a catch-all word when it comes to generating income. While that may be true for most for-profit businesses, nonprofit organizations are different. In nonprofit accounting, the word “revenue” indicates a transaction or direct exchange. Revenue is earned when a product is sold (a transaction) or when a service is provided that is then exchanged for cash or something similar.
For example, let’s say your nonprofit organization provides training services to workshop participants for a standard fee of $350 per person. John Smith registers for a workshop and pays $350 to your organization. This is considered revenue, because your organization is providing a service in exchange for cash. John Smith receives a direct benefit from the workshop, so his payment should be recorded as a revenue transaction.
Support
In addition to revenue, nonprofit organizations also have a unique income component called “support.” Support is money received by an organization, in which there is no intent to provide anything in return. Donations and contributions are considered support.
Unlike in a revenue transaction, there is no exchange of goods or services, and the donor doesn’t receive any direct benefit. That doesn’t necessarily mean there are no strings attached – sometimes a donor may place restrictions on their support, limiting how or when your organization can use that money. In that case, your organization would record the income as support with donor restrictions.
Other Changes
The third type of income associated with nonprofit organizations is “other changes.” This is income that doesn’t qualify as revenue, but it’s not support either. Some items that are typically classified as “other changes” on your financial statements might include interest, dividends, gains on the sale of an asset or forgiveness of debt.
For example, say your organization sells off one of your old, fully depreciated office computers on Craigslist. Your organization is not in the business of selling computers. The income you receive for that computer is not considered either revenue or support – it’s considered a gain on the sale of an asset. This would be recorded in the “other changes” section of your Statement of Activities.
Another example of “other changes” is loan forgiveness. Many organizations that received a Paycheck Protection Program (PPP) loan are beginning to record the forgiveness of those loans. This is technically a grant from the government, but it was evidenced by a note payable in a prior period. In such cases, organizations need to remove the liability with a gain on debt forgiveness in the “other changes” section of the Statement of Activities.
In my work as an accountant for nonprofit organizations, I have been reading and preparing financial statements for longer than I care to mention. Yet, even I still find myself sometimes saying “revenue” when I actually mean “support.” It can be difficult to always remember the correct language to use, but the truth is that revenue, support, and other changes are all different types of income, and care should be taken to make sure your organization clearly understands the difference.
