A pledge is a contract between a donor and a charity in which the donor promises to make a contribution in the future. The contract is the agreement between the donor and the charity whereby the donor is promising to make a gift and the charity is promising to accept it. The policies and procedures pertaining to pledges are parsed into five areas:

  • Recording the pledge
  • Booking pledge payments
  • Annual reconciliation and booking of pledge revenue
  • Recording the pledge discount
  • Writing off unpaid pledges

 

Recording a Pledge:

 

For a pledge to be recorded as a gift it must be documented in writing. There is no standard form or format to use but at a minimum the document must include the following:

 

  • The total pledge amount
  •  Date of pledge
  • The payment schedule (future dates and payment amounts)
  • The fund designation
  • Matching gift, in memorial, in honor of information, if applicable
  • Donors signature

 

The appropriate campus gift processing department will enter the pledge batch into the Advance database and forward copies of the open batch and the supporting documents to the USMF business office for review and closure of the batch.

 

As pledges are recorded throughout the year, they are not booked into the USMF general ledger system.

 

Booking Pledge Payments:

 

As pledge payments are received, they are entered in the Advance database as a pledge payment against the open pledge and recorded as revenue in the USMF general ledger as part of the daily posting of gifts.

 

Annual reconciliation and booking of pledge revenue:

 

At fiscal year-end a journal entry is made which debits Pledges Receivable and credits Pledge Revenue for the full amount of all new pledges recorded during the year. A second journal entry is made which reverses the revenue recorded during the year for pledge payments and credits those payments against the Pledges Receivable account.

 

Recording the Pledge Discount:

 

Pledges not expected to be paid within one year must be discounted back to present value.

 

At the close of the fiscal year the USMF Foundation will determine the discount rate in the following manner:

 

  • Determine the prime rate at 6/30/XX
  • Add one percentage point to the prime rate
  • Use either 3.25% or this calculated rate, whichever is greater, as the discount rate to be applied to current year pledges.

 

A fiscal year-end journal entry is made that reduces Pledges Receivable and Pledge Revenue by the total discount calculated against the current year pledges.


 

Writing Off Unpaid Pledges:

 

The USMF policy is to not book an allowance for pledge write-offs due to a history of immaterial write- offs of pledges.

 

If a multi-year pledge has not had a payment received against it in the current fiscal year or the prior fiscal year and they are past due for two fiscal years, then the USMF Foundation will write off the total remaining balance of the pledge in Financial Edge. We will not make any adjustment in the Advance system related to the pledge.

 

The entry for pledge write-offs is a debit to the Pledge Write-off expense account and a credit to Pledges Receivable.