Nonprofit Accounting Basics

Accounting for Special Events

Summer is over and event season is upon us. Whether your organization is hosting its first big gala, or you are planning an intimate event, there are some very specific accounting rules that apply to special events that you should keep in mind. We will address each specific area that your organization should consider below:

1) Ticket Sales
    Most ticket sales revenue is collected with 30 – 60 days preceding the event.

  • To correctly account for ticket sales, the organization should differentiate between the exchange transaction portion of the ticket price and the contribution portion. The exchange transaction portion, which is the ticket price less the fair value of the event, is recognized as event revenue. Any amount received that exceeds the fair value of the event should be recognized as contribution revenue.
  • Accounting – If there is no possibility of a refund, the exchange portion should be recorded to a deferred revenue account (a liability) and recognized in the period of the event. If a refund is possible, the ticket sale may be a conditional contribution and the entire portion should be recognized when the event occurs. 
  • Reporting - Ticket sales revenue is reported in the revenue section of the SOA and costs of direct benefits can be netted against the revenue, if desired. The costs of direct benefits include meals, valet, entertainment, rental space and gifts. Costs to advertise the event, print tickets, allocable costs for employee time and public relations or consultant fees are all fundraising costs and should be reported as incurred.

2) Sponsorship revenue

  • Theory – Sponsorships must meet the definition of a Qualified Sponsorship Payment to be considered as a contribution. For the definition click here (hyperlink to IRC Section 513(i)). If sponsorship provides a substantial return benefit, or benefits in excess of the fair value returned to the donor (for example, tickets or special events for a higher-level sponsor) the sponsorship may also include an exchange transaction. The value of the exchange transaction needs to be calculated and may be considered taxable income. Be intentional with regard to sponsorships to avoid including a component that could be defined as advertising.
  • Accounting - Sponsorships are most often received much earlier than the event and should be recorded as deferred revenue (a liability) and recognized in the period that the event occurs.
  • Reporting – Sponsorship income should be reported as event revenue.

3) In-Kind Donations

  • Theory - If your organization is receiving goods or services related to the event, remember to record the value of these as an in-kind contribution. Volunteered services do not need to be recorded, however, if you receive free design services or free invitations, these are examples of in-kind donations. For services, specifically, any contributed services that; create or enhance a non-financial asset or requires specialized skills, would typically need to be purchased and are provided by individuals with those skills, are considered to be in-kind contributions. Additionally, if the event includes a silent auction, you will likely have donated items. Organizations that typically receive donated items and services should adopt a gift acceptance policy.
  • Accounting – For contributed goods, when auction items are received, record them to an asset account and as an in-kind contribution at their fair market value. After the auction, record the value above or below FMV as contribution income, remove the asset and record the cash. For contributed services, value the services at market value and record when the services are received.
  • Reporting - Remember that in-kind contributions need to be recorded on a separate line on the Statement of Activities. Additionally, disclosures may be required for valuation methodology and any restrictions.

One additional tip:

Professional Fundraisers – Revenue raised by a professional fundraiser should be accounted for gross. Fees for professional fundraisers, even when paid on a commission basis, are fundraising expense, not a reduction of contributions.

Hopefully this provides some clarity regarding how to record and report special event revenue and expenses. It is a complex topic and you might find the need to reach out to your auditor or an external CPA for guidance.