Revenue Recognition

Revenue recognition is an accounting principle that determines the specific conditions under which income becomes realized as revenue on the financial statements. For nonprofits, this typically means recording donations, grants, membership fees, or earned income when they are received or when the organization has fulfilled the requirements tied to those funds. The timing of revenue recognition is crucial for accurately reflecting the organization’s financial health and ensuring compliance with accounting standards such as Generally Accepted Accounting Principles (GAAP) or Financial Accounting Standards Board (FASB) guidelines. Proper revenue recognition ensures that financial reports are transparent and provide stakeholders with a true picture of the nonprofit’s income and financial performance over a given period.