Question

the U.S. privately held company with a fiscal year-end of June 30th, 2020. it on June 1, 2020, that it will be donating unconditionally $10,000,000 to New York Church on September 1, 2020. The president of the company believes that the “Donation Expense” should be recognized on June 1, 2020, when the announcement was made vs. when the donation is paid to Church.

When should Mulcahy recognize the Donation Expense to DePaul University under U.S. GAAP?

GAAP Codification Reference:

Your answer/interpretation of when the company should recognize the Donation Expense to New York Church?       

Answer 1

As per GAAP, all expenses are deducted in the year of expense and not when the money has been changed hands.

For Tax authorities, a business expense is one which is made towards earning some business revenue/income. A donation is recognized in the year when it is accrued, if it has been made to have business revenue in current year or in future. If the donation is for charity purpose, it should be recognized in the year when it is actually made in terms of changing money from one hand to another.

So, in the case, the donation is unconditional and totally for charity purpose, so it should be recognized as “Donation Expense” on September 1, 2020, when the transaction money actually changed hands.

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