A not-for-profit health clinic received a donation of medical supplies with a fair value of $15,000. These supplies are intended for immediate use in patient care programs. The clinic's policy is to expense supplies when consumed. How should the clinic recognize this contribution?
- ADebit Supplies Expense $15,000; Credit Contribution Revenue - With Donor Restrictions $15,000.
- BDebit Supplies Expense $15,000; Credit Contribution Revenue - Without Donor Restrictions $15,000.
- CDebit Inventory $15,000; Credit Contribution Revenue - With Donor Restrictions $15,000.
- DDebit Inventory $15,000; Credit Contribution Revenue - Without Donor Restrictions $15,000.
Show answer & explanationAnswer & explanation
Correct answer: B. Debit Supplies Expense $15,000; Credit Contribution Revenue - Without Donor Restrictions $15,000.
When donated assets (like supplies) are intended for immediate use and the NFP's policy is to expense them when consumed, they should be recognized as an expense and corresponding contribution revenue at the time of receipt. Since there is no donor-imposed restriction beyond their immediate use in patient care, the revenue is classified as 'without donor restrictions'.
Why the other options are wrong
- A. Incorrect. There is no long-term donor restriction that would classify the revenue as 'with donor restrictions'.
- C. Incorrect. The supplies are intended for immediate use, implying no long-term restriction. Also, direct expensing is more appropriate given the policy.
- D. Incorrect. While inventory could be debited initially, the 'immediate use' and 'expense when consumed' policy suggests direct expensing for efficiency and materiality, and 'without donor restrictions' is correct for the revenue.
Donated Supplies for Immediate Use (NFP)
Donated supplies intended for immediate use are often recognized as an expense and corresponding unrestricted contribution revenue at the time of receipt, especially if the NFP's policy is to expense such items upon consumption.
- Intended for immediate patient care/program use.
- NFP policy to expense supplies when consumed.
- Recognized as expense and unrestricted contribution revenue upon receipt.
Memory trick: Donated 'Supplies' for 'S'hort-term use are 'S'imply expensed.