How Nonprofits Should Record Gross Donations and Net Deposits (October 2026)

Nonprofits should record gross donations as the total contribution amount before any processing fees or deductions, then show those fees separately as an expense. Net deposits represent the actual cash that hits the bank account after payment processors, platform fees, or other deductions take their cut. Understanding the difference between gross donations and net deposits matters because GAAP requires transparency about the full value donors contribute to your organization.

In our work with nonprofit bookkeepers and finance teams, the gross-versus-net question comes up constantly, especially when organizations start accepting online donations. A donor gives $100 through a platform like Network for Good, and $3.95 goes to processing fees, so $96.05 lands in the bank. How you record that transaction affects your financial statements, donor acknowledgment letters, and Form 990 reporting.

This guide breaks down exactly how to handle gross donations and net deposits so your records stay GAAP-compliant and audit-ready. We cover the accounting principles, walk through real journal entry examples, and address the most common mistakes we see nonprofit teams make when recording different types of contributions.

What Are Gross Donations in Nonprofit Accounting

Gross donations are the full value of every contribution your nonprofit receives before any deductions, fees, or expenses are subtracted. When a donor pledges or gives $500, that $500 is the gross donation, regardless of what it costs your organization to process the payment. Recording gross donations means the full amount shows up as contribution revenue on your statement of activities.

Under GAAP, nonprofits must report the complete value of what donors actually contributed. This comes from ASC 958, the Financial Accounting Standards Board’s guidance on contributions received and made. The principle is simple: donors deserve credit for the full amount they gave, and stakeholders deserve an accurate picture of the revenue your organization generates.

The gross approach also applies to non-cash gifts. If a company donates equipment worth $10,000, you record $10,000 in in-kind contribution revenue at fair market value. You do not net out any costs associated with receiving or transporting that donation.

What Are Net Deposits and How They Differ

Net deposits are the actual cash amount that lands in your nonprofit’s bank account after all fees and deductions. If a donor gives $100 online and the processing fee is $2.90 plus 30 cents, the net deposit is $96.80. The bank statement shows $96.80, but the donor’s gift was $100.

Net deposits matter for cash reconciliation. When you reconcile your bank account each month, the deposits must match what the bank actually received. But net deposits should never be recorded as your contribution revenue figure. They represent the cash outcome, not the donation value.

The confusion between gross donations and net deposits causes more accounting errors than almost anything else in nonprofit bookkeeping. Small organizations often record only what hits the bank and skip the gross amount entirely. That understates revenue, hides processing costs, and distorts the true picture of donor generosity.

Gross vs Net Presentation: A Side-by-Side Comparison

The clearest way to understand how nonprofits should record gross donations and net deposits is to look at the two approaches side by side. Here is how the same $1,000 online donation with $29 in processing fees would appear under each method.

Gross presentation (GAAP-compliant): Contribution revenue increases by $1,000. Bank charges or processing fee expense increases by $29. Cash increases by $971. The financial statements show the full donor contribution and the cost of processing it.

Net presentation (not recommended): Contribution revenue increases by $971. Cash increases by $971. Processing fees never appear anywhere. The statements understate revenue by $29 and hide the cost of online giving entirely.

The gross method gives board members, auditors, and donors a transparent view of both revenue and expenses. The net method obscures real costs and makes it harder to evaluate whether your payment processor is charging competitive rates.

GAAP Requirements for Recording Nonprofit Donations

GAAP, which stands for Generally Accepted Accounting Principles, sets the rules nonprofit organizations must follow when preparing financial statements. For donation accounting, the relevant guidance lives in ASC 958-605, which covers revenue recognition for contributions. The core requirement is that contributions must be recorded at fair value in the period the donor makes the unconditional promise to give.

This means your nonprofit uses the accrual basis of accounting, not cash basis. Under accrual accounting, you record revenue when it is earned or when an unconditional pledge is made, not when the cash arrives. A donor who pledges $5,000 in December and pays in January creates revenue in December under GAAP.

GAAP also requires nonprofits to classify contributions based on donor restrictions. Contributions without donor restrictions go into one category, and contributions with donor restrictions go into another. This classification appears on your statement of activities and your statement of financial position. Recording gross donations correctly feeds directly into accurate net asset classification.

The Financial Accounting Standards Board updated nonprofit reporting requirements with ASU 2016-14, which simplified net asset categories from three down to two: net assets without donor restrictions and net assets with donor restrictions. Every contribution you record gross must flow into one of these two buckets.

How to Record Cash Donations With Journal Entries

Recording cash donations follows a straightforward pattern once you understand the gross approach. The specific accounts you use depend on whether the gift comes with donor restrictions and whether any fees apply.

Step 1: Record an unrestricted cash donation. When a donor writes a check for $500 with no restrictions, debit Cash for $500 and credit Contributions Revenue without Donors Restrictions for $500. This entry happens on the date you receive or mail the check.

Step 2: Record a restricted cash donation. If a donor gives $1,000 specifically for your scholarship program, debit Cash for $1,000 and credit Contributions Revenue with Donors Restrictions for $1,000. When you spend the funds on scholarships, you release the restriction by reclassifying: debit Net Assets Released from Restrictions and credit Net Assets Released from Restrictions on the expense side.

Step 3: Record a pledge. For a written pledge of $10,000 payable over two years, debit Pledges Receivable for $10,000 and credit Contributions Revenue for the present value of the pledge. If the pledge is unrestricted, credit Contributions Revenue without Donors Restrictions. As payments arrive, debit Cash and credit Pledges Receivable.

Step 4: Record a donation with a processing fee. For a $200 online donation with a $5.80 processing fee, debit Cash for $194.20, debit Processing Fee Expense for $5.80, and credit Contributions Revenue for $200. The gross amount hits revenue, the fee hits expenses, and cash reflects what actually arrived.

How to Record Online Donations and Payment Processor Fees

Online giving has exploded over the past several years, and it created a new layer of complexity for nonprofit bookkeepers. Platforms like Stripe, PayPal, Network for Good, Classy, and Donorbox all charge fees that reduce what lands in your bank account. The question we hear most often is whether to record the gross donation or the net deposit.

The answer is always gross. You record the full donation amount as contribution revenue, then record the processing fee as a separate expense. This applies whether the platform deducts fees before disbursing funds or bills you separately each month.

When fees are deducted before deposit: A donor gives $250 through your website. The platform charges 2.9 percent plus 30 cents, which is $7.55. The platform deposits $242.45 into your bank. Your journal entry debits Cash for $242.45, debits Bank Charges or Credit Card Processing Fees for $7.55, and credits Contributions Revenue for $250.

When fees are billed monthly: Some platforms deposit the full donation amount and bill fees separately. In that case, debit Cash for $250 and credit Contributions Revenue for $250 when the gift arrives. When you receive the monthly fee invoice, debit Credit Card Processing Fees and credit Cash or Accounts Payable.

This approach keeps your revenue figures accurate for donor acknowledgment letters and grant reports. Donors who give $250 should see $250 on their gift confirmation and tax receipt, not $242.45.

For organizations using QuickBooks Online, set up a separate expense account called Credit Card Processing Fees or Merchant Account Fees. This makes it easy to track annual processing costs and compare rates across platforms. Class tracking in QuickBooks can also help you allocate fees by campaign or fund if needed.

Recording In-Kind Donations at Fair Market Value

In-kind donations are non-cash contributions, including donated goods, professional services, and use of facilities. GAAP requires nonprofits to record in-kind donations at fair market value if the contribution would otherwise need to be purchased. This means donated legal services from an attorney, free use of an event venue, or a truckload of donated food all belong on your books.

Fair market value is the price a willing buyer would pay a willing seller for the same item or service. For donated goods, use current retail prices. For donated services, use the professional rate the provider normally charges. Document how you determined the value with invoices, rate sheets, or comparable market data.

The journal entry for in-kind donations follows the same gross principle. If a marketing agency donates $5,000 worth of design work, debit Professional Services Expense for $5,000 and credit In-Kind Contributions Revenue for $5,000. The expense and revenue offset each other on the statement of activities, but both figures are visible.

Not every volunteer hour qualifies for recording. GAAP only requires you to record donated services if they create or enhance a nonfinancial asset, require specialized skills, or are provided by someone who would normally be paid. General volunteer help at an event does not go on the books, even though it is valuable.

In-kind donations also require Form 990 reporting. The IRS asks separately about donated services and use of facilities on Part VIII of the Form 990. Keeping clean in-kind records throughout the year makes tax-time reporting straightforward.

Common Mistakes When Recording Nonprofit Donations

We see the same errors repeatedly when reviewing nonprofit books. The most common is recording only net deposits and skipping the gross donation amount. This understates revenue, hides processing costs, and creates reconciliation headaches at audit time.

Another frequent mistake is failing to separate restricted and unrestricted contributions. Pooling all donations into one revenue account makes it impossible to track whether you are spending restricted funds on their designated purposes. It also complicates net asset reporting on financial statements.

Recording in-kind donations inconsistently causes problems too. Some nonprofits record donated goods but skip donated services, or vice versa. This creates year-over-year inconsistencies that auditors flag immediately. Develop a written policy for what in-kind contributions you record and apply it consistently.

Finally, many small nonprofits use cash-basis accounting out of habit. GAAP requires the accrual method for nonprofits, especially when pledges are involved. Recording pledges when cash arrives rather than when they are promised distorts revenue timing and violates contribution recognition rules.

Frequently Asked Questions

Conclusion

Recording gross donations and net deposits correctly is one of the most fundamental skills in nonprofit accounting. The rule is consistent: record the full donation amount as contribution revenue, record processing fees as a separate expense, and let cash reflect what actually landed in your bank account. This gross presentation approach keeps your books GAAP-compliant and gives stakeholders an honest picture of donor generosity and operational costs.

If your nonprofit is just establishing its accounting processes, start by reviewing your chart of accounts. Make sure you have separate revenue accounts for restricted and unrestricted contributions, and create a dedicated expense account for payment processing fees. Document your in-kind donation policy so every gift gets recorded consistently.

For teams already managing donations but unsure whether their current method is correct, pull a recent batch of online gifts and compare what you recorded against the gross amounts donors actually gave. If the numbers do not match, now is the time to adjust your process before your next audit or Form 990 filing.