Lesson 73 - Advanced Accounting Course

Lesson 73: Grant Accounting and Compliance with Donor Restrictions

💡 What Is Grant Accounting?

Grant accounting is the process of tracking and managing funds received through grants, especially when those funds come with conditions or restrictions. It is commonly used in:

• 🏛️ Nonprofit organizations
  
  

• 🏫 Educational institutions
  
  

• 🏥 Healthcare providers
  
  

• 🌍 NGOs and international aid organizations
  
  

🧠 The key goal is to ensure proper use of funds as promised to the grantor (donor or agency).

💰 Why Are Donor Restrictions Important?

Donors often specify how their money should be used. If the organization fails to comply:

• ❌ It may need to return the funds
  
  

• 🚨 It could lose credibility or future funding
  
  

• 🧾 It may face legal or tax consequences
  
  

🔄 Types of Donor Restrictions

🔍 Key Steps in Grant Accounting

1. Recording the Grant
   
   

   • At the time of the award or when conditions are met
     
     

   • 📥 Debit: Cash or Receivable
     
     

   • 📤 Credit: Grant Revenue (restricted or unrestricted)
     
     

2. Tracking the Use of Funds
   
   

   • Keep separate records for each grant
     
     

   • Use fund accounting if needed
     
     

3. Monitoring Compliance
   
   

   • Ensure money is spent only on approved activities
     
     

   • Use budgets, reports, and documentation
     
     

4. Reporting to Donors or Grantors
   
   

   • Provide financial and performance reports
     
     

   • 🧾 Include how much was spent and on what
     
     

📊 Accounting Table: Grant Recognition

🧠 Practical Example

Let’s say a donor gives $100,000 to a nonprofit for building a library:

• ➕ At receipt (with restriction):
  
  

  • Dr. Cash $100,000
    
    

  • Cr. Deferred Grant Revenue (liability)
    
    

• ✅ When funds are used for construction:
  
  

  • Dr. Expense (e.g., Building Costs)
    
    

  • Cr. Cash
    
    

  • Dr. Deferred Revenue
    
    

  • Cr. Grant Revenue
    
    

✅ Summary

• Grant accounting ensures proper handling and reporting of funds received through grants.
  
  

• Donor restrictions must be followed carefully to stay compliant and ethical.
  
  

• Tracking, reporting, and transparency are essential for future funding and trust.
  
  

• Always classify grants as unrestricted, temporarily restricted, or permanently restricted.