Accounting
Grant Management
Nonprofit Accounting
Nonprofit Management
ASU 2018-08: Contributions vs Exchange Transactions and Conditional Grants
Last updated: October 9, 2026 · Independent guide · We do not sell rankings or coverage.
ASU 2018-08 tells you how to classify a grant before you book anything. If the funder receives commensurate value in return, the grant is an exchange transaction that you account for under ASC 606. If it does not, the grant is a contribution under ASC 958-605, and it is conditional only when the agreement contains both a barrier and a right of return or release. Conditional cash received in advance sits in a refundable advance liability until you overcome the barrier, while unconditional grants are recognized as contribution revenue when promised or received.
The rule and the journal entries
FASB built the guidance as a sequence of questions, and you answer them in order.
- Commensurate value test. Does the resource provider receive value of approximately equal worth? A benefit to the general public is not commensurate value to the funder, and neither is the funder furthering its own mission (ASC 958-605-15-5A). If the funder does receive commensurate value, apply ASC 606.
- Barrier test. Does the agreement contain a barrier the recipient must overcome before it is entitled to the funds? Indicators are a measurable performance-related barrier, limited discretion over how you conduct an activity, and stipulations related to the purpose of the agreement. Administrative and trivial stipulations are not barriers, and no single indicator is determinative (ASC 958-605-25-5D).
- Right of return or release test. Does the funder have the right to recover assets it has transferred, or to be released from its promise, if you fail to overcome the barrier? Both a barrier and this right must exist for the contribution to be conditional (ASC 958-605-25-5A).
- Restriction test. For an unconditional contribution, does the donor limit its use to a purpose or time period? If so, report it as revenue with donor restrictions.
| Account | Debit | Credit | Note |
|---|---|---|---|
| Cash | X | Conditional grant, cash advanced before the barrier is met | |
| Refundable advance (liability) | X | No revenue until the condition is substantially met or explicitly waived | |
| Refundable advance | X | Barrier overcome, for example allowable costs incurred | |
| Grant revenue (contribution) | X | Without donor restrictions if you elect the simultaneous release option | |
| Cash or contributions receivable | X | Unconditional grant, recognized when promised or received | |
| Contribution revenue, with donor restrictions | X | Use the without-restrictions account if the grant is unrestricted | |
| Cash | X | Exchange transaction, paid before you perform | |
| Contract liability (deferred revenue) | X | Released to revenue as you satisfy ASC 606 performance obligations |
An unpaid conditional promise creates no entry. You track it outside the ledger and disclose it.
Worked example: three grants at one organization
The following figures are an illustration, not data from a real organization. A community health nonprofit with a June 30 year end has elected the simultaneous release option for initially conditional contributions. In July it signs three agreements.
Grant A: federal cost-reimbursement award, $500,000
A federal agency awards $500,000 for a two-year outreach program. Funds may only be spent on allowable costs in the approved budget, and the agency can recover any funds not spent in compliance. The public benefits from the program, so the agency does not receive commensurate value. Incurring allowable costs is a measurable barrier, and the recovery right is a right of return, so the award is a conditional contribution. The agency advances $100,000 in July.
Step 1, July: Debit Cash $100,000; credit Refundable advance $100,000.
Step 2, July to September: The organization incurs $80,000 of allowable costs. Debit Program expenses $80,000; credit Cash $80,000. Then debit Refundable advance $80,000; credit Grant revenue, without donor restrictions $80,000.
Step 3, October to December: It incurs another $60,000 of allowable costs, which exceeds the remaining $20,000 advance. Debit Refundable advance $20,000 and Grant receivable $40,000; credit Grant revenue, without donor restrictions $60,000.
At December 31 the organization has recognized $140,000 of revenue, carries no refundable advance, and has $360,000 of conditional award remaining that it discloses but does not record.
Grant B: foundation program grant, $150,000
A foundation commits $150,000 for the organization’s youth program, paying $50,000 now and $100,000 in eleven months. The agreement has no barrier and no right of return, so it is unconditional and purpose-restricted. Debit Cash $50,000 and Contributions receivable $100,000; credit Contribution revenue, with donor restrictions $150,000. As the organization spends on the youth program, it records a release: debit Net assets with donor restrictions; credit Net assets without donor restrictions for the amount spent.
Grant C: challenge grant, $50,000
A second foundation promises $50,000 only if the organization raises a $50,000 match by June 30. The match is a measurable barrier and the foundation is released if it fails, so the promise is conditional. No entry is made in July. When the organization reaches the $50,000 match in March, it records: debit Contributions receivable $50,000; credit Contribution revenue $50,000, classified by any restriction the foundation imposed.
The standard behind it
FASB issued ASU 2018-08 in June 2018 to amend ASC 958-605, Not-for-Profit Entities: Revenue Recognition. For resource recipients that were not public business entities or conduit bond obligors, it took effect for annual periods beginning after December 15, 2018, with a modified prospective transition.
Three provisions shape how you read agreements. Substance decides the answer, not the label (ASC 958-605-15-7A). The likelihood that you will meet a condition is not a factor, which replaced the older “remote” test (ASC 958-605-25-5C). An ambiguous stipulation is presumed to be a condition (ASC 958-605-25-5E).
The Legal Services Corporation’s Program Letter 23-2 (May 12, 2023) is a public example of a funder applying the test. It concludes its Basic Field Grants are contributions with conditions, with the cost standards in 45 CFR Part 1630 serving as the barrier and the recovery provisions in Part 1606 serving as the right of return, and it directs recipients to hold unspent funds as a refundable advance. Federal awards generally carry similar features: 2 CFR 200.346 treats federal funds paid in excess of the amount the recipient is entitled to as a debt to the government.
Common mistakes
- Calling every government grant an exchange. ASC 958-605-15-5A says the type of resource provider does not determine the answer.
- Treating restrictions as conditions. A restriction limits how you use the money. A condition must be overcome before you are entitled to it. A grant “for the food pantry” with no right of return is restricted, not conditional.
- Booking the full award at signing. Award notification is not revenue for a conditional grant, and booking it overstates both receivables and revenue.
- Leaving advances in deferred revenue. Deferred revenue or contract liability is the ASC 606 account. Conditional contributions belong in a refundable advance, and auditors will ask why the terms differ.
- Applying the simultaneous release election inconsistently. You may elect it for initially conditional contributions without electing it for other donor-restricted contributions, but you must apply your policy consistently and disclose it (ASC 958-605-45-4A and 45-4B).
How to report it
On the statement of financial position, show refundable advances as a liability and contributions receivable separately from exchange receivables. On the statement of activities, present contribution revenue by net asset class and exchange revenue as program service or contract revenue.
In the notes, recipients of conditional promises disclose the total amount promised and a description and amount for each group of promises with similar characteristics, as required by ASC 958-310-50-4. Disclose your simultaneous release policy if you elect it, and add any award-year schedules your funder requires.
How to track conditions in grant management software
The accounting answer depends on facts in the agreement, so each award record should carry these fields:
- Classification: exchange, unconditional contribution, or conditional contribution, with the date and preparer of the analysis.
- Barrier type: allowable costs incurred, matching funds, units of service, milestone, or other.
- Right of return or release: the clause reference in the agreement.
- Restriction: purpose and time limits, separate from the condition fields.
- Amounts: total award, cash received, revenue recognized, refundable advance balance, and unrecognized conditional balance.
- Payment method: advance, reimbursement, or milestone payment.
Reconcile refundable advances by award to the general ledger monthly. If you run a separate grant management system from your ledger, our grant management software guide covers how those tools pass award data to accounting.
How ERP and accounting systems automate it
Sage Intacct. Sage’s nonprofit revenue recognition datasheet (no date shown) says the product centralizes revenue recognition for conditional grants and contributions and provides condition status tracking. Its claim to be the only such solution is vendor marketing without supporting detail. Our Sage Intacct for nonprofits review covers pricing and modules.
Blackbaud Financial Edge NXT. Blackbaud’s page for grant-funded organizations (no date shown) describes tracking revenue and expenses by project and grant, reimbursable grant management, and automated reimbursement calculations. The page does not describe refundable advance handling or condition tracking, so confirm those in a demo.
Oracle NetSuite. The 2026 NetSuite for nonprofits datasheet says you can track grant timelines, reporting obligations, allowable spending, and fund balances, and segment transactions by fund, grant, and restriction. It does not mention ASU 2018-08 or conditional contributions, so expect to configure the refundable advance logic yourself or with a partner.
All three vendors sell the products described. For a wider comparison, see our nonprofit accounting software guide.
How we researched this
We read the full text of ASU 2018-08, the Uniform Guidance on eCFR, and one funder’s published application of the standard. We also reviewed top-ranking accounting firm explainers, which cover the decision tree but not journal entries or system setup. Vendor statements come from each vendor’s own material, checked October 9, 2026.
Related guides
- Restricted Funds Accounting: Restrictions and Releases
- Statement of Activities: Nonprofit Template and How-To
- How to Record In-Kind Donations: Entries and ASU 2020-07
Frequently asked questions
Is a government grant an exchange transaction or a contribution?
Most government grants that fund services to the public are contributions, because the government does not receive commensurate value for itself. It is an exchange when the agency receives goods or services for its own use. ASU 2018-08 says the type of funder does not decide the answer.
What makes a grant conditional under ASU 2018-08?
The agreement must contain both a barrier you must overcome and a right of return or release for the funder if you fail. Barriers include measurable performance targets, matching requirements, and limits on how you carry out an activity. If either element is missing, the grant is unconditional.
Where do I record cash received on a conditional grant?
Record it as a refundable advance, which is a liability. Move it to revenue as you overcome the barrier, for example as you incur allowable costs on a cost-reimbursement award.
Do I record a conditional grant that has not been paid?
No. A conditional promise with no cash received creates no journal entry. You disclose the total conditional amount and the groups of similar promises in the notes under ASC 958-310-50-4.
What is the simultaneous release option?
It is an accounting policy election that lets you report a restricted contribution as without donor restrictions when the restriction is met in the same period the revenue is recognized. ASU 2018-08 lets you elect it for contributions that were initially conditional without also electing it for other restricted contributions. You must disclose the policy and apply it consistently.
Sources
- FASB, Accounting Standards Update No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, June 2018. storage.fasb.org
- Legal Services Corporation, Program Letter 23-2, Revenue Recognition Guidance, May 12, 2023. lsc.gov
- eCFR, 2 CFR 200.346, Collection of amounts due, up to date as of October 7, 2026. ecfr.gov
- PKF O’Connor Davies (accounting and audit firm), Reporting Government Revenue Under FASB ASU 2018-08: Providing Some Clarity, April 30, 2020. pkfod.com
- Baker Tilly (accounting and audit firm), FASB clarifies accounting guidance for contributions, January 7, 2019. bakertilly.com
- Sage (sells Sage Intacct), Nonprofit revenue recognition datasheet, no date shown, checked October 9, 2026. sage.com
- Blackbaud (sells Financial Edge NXT), Powerful Accounting for Grant-Funded Organizations, no date shown, checked October 9, 2026. blackbaud.com
- Oracle NetSuite (sells NetSuite), NetSuite for Nonprofit Organizations datasheet, 2026. netsuite.com
Sherman Hsieh
Independent analysis of enterprise software — ERP, CRM and more
