How to Record Pledges Receivable
Pledges receivable are a significant aspect of non-profit organizations, where individuals or entities commit to making donations at a future date. Properly recording these pledges is crucial for accurate financial reporting and managing expectations. This article outlines the steps and best practices for recording pledges receivable in your organization’s financial records.
Understanding Pledges Receivable
Before diving into the recording process, it’s essential to understand what a pledge receivable is. A pledge is a legally binding agreement between a donor and a non-profit organization, where the donor promises to donate a specific amount of money at a future date. These pledges can be made in various forms, such as a written letter, email, or verbal commitment.
Steps to Record Pledges Receivable
1. Identify the Pledge: The first step is to identify the pledge and document the necessary information, including the donor’s name, the amount of the pledge, the expected payment date, and any specific conditions or restrictions attached to the pledge.
2. Set Up a Pledges Receivable Account: Create a separate account in your accounting software or ledger to track pledges receivable. This account will be used to record the pledges as they are received and recognized over time.
3. Record the Pledge: When a pledge is received, record it in the pledges receivable account by debiting the pledges receivable account and crediting the appropriate income account, such as “unrestricted pledges” or “restricted pledges,” depending on the donor’s specifications.
4. Amend the Pledges Receivable Account: If the terms of the pledge change, such as the amount or the payment date, update the pledges receivable account accordingly. This may involve adjusting the debits and credits in the account to reflect the new terms.
5. Recognize the Pledge: As the payment date approaches, you will need to recognize the pledge as income. This involves crediting the pledges receivable account and debiting the appropriate income account. The recognition of the pledge as income should be based on the organization’s accounting policies and the terms of the pledge.
6. Record the Payment: Once the donor makes the payment, record it in your accounting system by debiting the cash or bank account and crediting the pledges receivable account.
Best Practices for Recording Pledges Receivable
– Maintain detailed records of all pledges, including the donor’s contact information, the amount of the pledge, and any conditions or restrictions.
– Regularly review and update the pledges receivable account to ensure accuracy.
– Communicate with donors to verify the status of their pledges and to manage expectations.
– Consult with your organization’s financial advisor or accountant to ensure compliance with accounting standards and best practices.
By following these steps and best practices, your organization can effectively record and manage pledges receivable, ensuring accurate financial reporting and maintaining strong relationships with your donors.
