Accounting Treatment of Government Funding for Not For Profits

The accounting treatment of government funding is largely dependent on the conditions stipulated by each funding provider. A common example is the requirement to acquit all funding in full at the end of each year, with any unspent amounts to be repaid or withheld from the next year’s allocation. In this situation, only the portion of the funding spent during the financial year should be recognised as income to the organisation. The remaining portion is then set aside as unearned income in the balance sheet, where it will be recognised as income in the following financial year when spent (or the liability is extinguished when unspent funds are repaid to the funding provider).

Other providers will allow the recipient to keep these funds on the condition they continue to be used for approved purposes. In this situation, the funding should be recognised as income in full upon receipt.

The following flowchart provides a summary of this common treatment:

There may be specific situations where there is no formal requirement to repay unspent funds however you may wish to spread the recognition of the income out over an extended period (i.e. if a lump sum was received for the construction of a new building that will take 18 months to complete). In this situation, it is important to talk to your accountant to ensure that this treatment is appropriate for your specific financial reporting obligations.

Cristy Houghton

Embarketing, 48 Johnston Street, Wagga Wagga, NSW, 2650

Cristy's unique career has taken her from country NSW to the city lights of Clarendon Street South Melbourne and back again. With an early career in radio as a copywriter and creative strategist, she is now a Jill of all trades as a graphic designer, website builder, blog writer, video editor, social media manager, marketing strategist and more. 

In fact, give her any task and this chick will figure out how to do it! Go on, we dare you!

No, really, we DARE you!!

Cristy has won two Australian Commercial Radio Awards (ACRAs) for Best Ad and Best Sales Promotion, and even has an 'Employee of the Year' certificate with her name on it.

Cristy and her husband James have traveled extensively through Russia, China and South East Asia, and have two fur-babies, Sooty (cat) and Panda (puppy). Cristy loves drinking coffee, meeting people to drink coffee, coffee tasting and coffee flavoured cocktails. She also enjoys road trips, TED Talks and watching cat videos on youtube.