Under FASB standards, when does a not-for-profit recognize a conditional pledge?

• A. As revenue when the pledge is made.
• B. As revenue only when pledge conditions are substantially met.
• C. As revenue when cash is received.
• D. As revenue when the donor states it.

Answer: (B)

The main idea is that a conditional pledge isn’t considered revenue until the donor-imposed condition is substantially met. Until that point, the organization doesn’t yet have an unconditional right to the resources, so it doesn’t recognize the promise as revenue. If cash is received before the condition is met, it’s typically recorded as a liability (a refundable advance or donor-restricted liability) rather than revenue. When the condition is substantially met and the pledge becomes unconditional, revenue is recognized and any related restrictions are released as appropriate.