Options for a Cancelled Events Policy, and Accounting for Cancelled Events

All can agree it has been an interesting year. The COVID-19 pandemic has had an incredible impact on our personal lives and the way we work and conduct business. Nonprofits have not been immune to these challenges. A year later, we are still talking about the pandemic and it is continuing to affect nonprofit events and fundraisers.

Organizations are getting creative with virtual events or new campaigns. Still, for events that have had to be altered or cancelled, it’s essential to understand how to account for funds received before the event.    

Contribution revenue vs. exchange revenue

Two different types of revenue are related to fundraising events – contribution revenue and exchange revenue. The contribution piece is when people are giving but receiving nothing in exchange. The exchange piece is the value of the good or service people receive in exchange. For example, the price of admission that is above and beyond the fair value of the goods and services received is considered a contribution. See Yeo & Yeo’s article, Special Event Accounting and Reporting, for more information about distinguishing fundraising revenue between contribution and exchange.

Establish a policy for cancelled event funds

Now that we understand the types of fundraising revenue, how do we treat each of them when funds have been collected in advance for an event that is cancelled? First, a nonprofit should establish a written policy regarding event funds and what it will do with them if an event is cancelled. If no policy is in place, the default is that the contribution portion is unconditional.

Consider a few different options for the policy:

1. Policy states the funds should be given back to the donor.
2. Policy states the organization must contact the donor and ask if they would like a refund or want to contribute the funds.
3. Policy states the organization retains the funds as a contribution if the event is cancelled.
4. Policy states the funds will be used for a later event.

Which option the organization chooses dictates how to account for these funds.

Policy states the funds should be given back to the donor. When the nonprofit initially receives the funds, exchange revenue related to the event is recorded as deferred revenue, and contributions related to the event are recorded as a refundable advance. The money is held in these liability accounts until the event takes place. The exchange revenue isn’t considered earned until the event takes place. Also, the contribution revenue is deemed to be conditional on the event taking place. When the organization cancels the event, all the money collected would be paid back to the donors and removed from the deferred revenue and refundable advance liability accounts. No revenue ever hits the organization’s books.

Policy states the organization must contact the donor and ask if they would like a refund or want to contribute the funds. When originally received, exchange revenue related to the event would be recorded as deferred revenue, and contributions related to the event would be recorded as a refundable advance. The money is held in the liability accounts until the event takes place. When the organization cancels the event, the money collected is either paid back to the donor and the liability is reduced, or the funds are considered an unconditional contribution as soon as the donor agrees to forfeit the funds to the organization, making it contribution revenue on that date, including the foregone exchange revenues.

Policy states the organization retains the funds as a contribution, or there is no policy. If this is the organization’s policy, the nonprofit should be making this clear to donors and ticket buyers for their events, such as listing “nonrefundable” on the tickets. When the funds are received initially, the exchange revenue related to the event would be recorded as deferred revenue. However, the event’s contributions would be recorded as revenue at the time of the payment. This is because the revenue is not conditional on the event taking place since funds would not be returned to the donor if the event is cancelled. This can also result in revenue being recognized for a fundraiser in a fiscal year different from when the fundraiser takes place. For example, if funds are collected in December 2020 for a February 2021 event, the contribution portion of those payments is recognized as revenue in December 2020. If the event is cancelled, the exchange piece of the revenue is recognized as unconditional contribution revenue on the date of cancellation. The contribution portion of the revenue is already recorded, so nothing needs to be done with that upon cancellation. 

Policy states the funds will be used for a later event. Like many of the other options above, the exchange revenue and contributions are held in liability accounts until the event takes place. Suppose the funds are designated to be used for a later event upon cancellation. In that case, they will remain in the liability accounts until this later event occurs, at which time they would be recognized as revenue.

Tracking is still required

One last item that needs to be addressed regarding cancelled events is when the nonprofit recognizes funds collected for the event as contributions. The nonprofit must track those donors like it would any other regular contribution to the organization. Therefore, donor receipt letters, year-end donor summary reports, and donor tracking must all occur when exchange revenue is converted into contribution revenue.

While cancelling events is not ideal for the nonprofit, it is crucial to understand how to account for it when this does occur due to unforeseen circumstances. Proper accounting all comes down to the nonprofit establishing a policy regarding cancelled events and the related funding collected to ensure revenue is appropriately handled.