Exchange Transactions

Factors that may indicate an exchange transaction:

Often it is difficult to distinguish between a contribution and an exchange transaction, the following factors are indicative of an exchange transaction:

• There economic penalties if the terms of the agreement are not met
• The payor specifies the time and place of delivery of any goods or services
• The payment is calculated in a manner that provides a "profit margin" for the recipient
• The payor receives a direct benefit from the payee (excluding any intrinsic benefit from helping the NFP)
• The grant requires that the recipient provide the grantor with a specific service, facility or product rather than providing the benefit to the general public

There is often no clear indicator as to whether something is a contribution or an exchange transaction. In this case the primary objective should be to treat all transactions consistently. For example, if you receive awards that contain indicators of both contributions and exchange transactions you should treat all of them in the same manner.This article contributed by Calibre CPA Group (www.calibrecpa.com)