When should a nonprofit recognize revenue from grants?

• A. When cash is received
• B. When eligible
• C. When the project begins
• D. When the grant is expended

Answer: (B)

Grants are recognized as revenue when they are earned, not simply when cash arrives. For a nonprofit, eligibility means the organization has met the donor’s conditions and has the right to the funds. If a grant is conditional, revenue is recorded only after those conditions are satisfied and the grant becomes receivable. If there are restrictions, the grant is recorded as temporarily restricted until those restrictions are satisfied, then released to unrestricted as appropriate. Merely receiving cash, starting the project, or expending the grant does not by itself determine when revenue is earned. Therefore, recognizing revenue when the organization is eligible—i.e., when conditions are met and the grant is earned—is the correct approach.