Accounting For Grants

Grants are recorded based on their type and the conditions attached to them—not simply when the cash arrives. The right treatment depends on whether you’re a for-profit business or a not-for-profit, whether the grant funds operations or an asset, and what conditions you have to meet first. This guide walks through how to record grants, the journal entries involved, when they count as revenue, and the standards that now govern them.

What changed in 2025: On December 4, 2025, the FASB issued ASU 2025-10, which for the first time adds government-grant recognition, measurement, and presentation guidance to US GAAP (ASC 832) for business entities—guidance US GAAP previously lacked. It is based on the IFRS standard IAS 20. It takes effect for public business entities for fiscal years beginning after December 15, 2028 (December 15, 2029 for all other entities), with early adoption permitted.

How Do I Account For A Grant?

Accounting for a grant correctly keeps your financial statements accurate and compliant. The core steps are the same regardless of grant type: identify the nature of the grant, determine which standard applies, decide the right timing for recognition, and record it in your books. Virtual accounting services can handle this for you and keep the treatment consistent across multiple grants.

Understanding Different Types of Grants

Grants fall into a few broad categories, and the category drives the accounting:

Grant type	Typical purpose	Accounting note
Government grant	Public funding, often with conditions	Recognized as the attached conditions or milestones are met
Private grant	Foundation or corporate funding	Often carries fewer stipulations than government grants
Capital (asset-related)	Buying or building an asset	Recognized over the asset’s useful life, or netted against the asset’s cost
Operating (income-related)	Covering operating expenses	Recognized as revenue in the period the related costs are incurred

Which Standards Apply: US GAAP, IAS 20, and ASC 832

This is where many older guides get it wrong. Until recently, US GAAP had no specific recognition or measurement guidance for government grants received by for-profit businesses. In practice, companies analogized to the IFRS standard IAS 20, or sometimes to the not-for-profit contribution rules in ASC 958-605. ASU 2025-10 (December 2025) closed that gap by adding guidance to ASC 832, based on IAS 20. Not-for-profits continue to apply ASC 958-605. Whichever standard applies, the goal is consistent: recognize grants in a way that gives a clear, accurate view of your finances.

Steps to Recognize a Grant in Financial Statements

Recognizing a grant generally follows four steps:

1. Assess the grant type and the conditions attached to it.
2. Determine the right timing for recognition—usually as conditions or milestones are met, not simply when cash is received.
3. Record the grant as deferred income (a liability) or as revenue, depending on its nature and any performance obligations.
4. Release deferred amounts to revenue as the conditions are satisfied (for asset grants, over the asset’s useful life).

Significance of US GAAP in Grant Accounting

For organizations operating in the United States, adhering to US GAAP is critical for ensuring consistency and transparency in financial reporting. US GAAP provides guidelines for recognizing, measuring, and disclosing grants, ensuring stakeholders receive a true and fair view of the organization’s financial health.

Steps in Recognizing a Grant in Financial Statements

Recognizing a grant in financial statements involves several steps. Initially, assess the grant type and its conditions, followed by determining the right timing for recognition. Recognition often depends on meeting specific conditions or milestones associated with the grant. Once the criteria are met, record the grant as a liability or revenue, depending on its nature and requirements. Regular updates and training in grant accounting can help your finance team stay compliant with the latest standards and best practices.

What Is The Accounting Entry For A Grant?

When accounting for a grant, the specific journal entries depend heavily on the type of grant received and its conditions. Start by identifying the right accounts, which vary based on the grant’s nature and the standard you apply.

Determining the Appropriate Accounts

In general, the accounts involved in grant accounting include revenue accounts for recognizing grant income and liability accounts in cases where the grant requires certain performance conditions before recognition. It’s essential to review the specific terms of the grant to determine when and how the funds or benefits should be recognized in financial statements.

Recording Initial Recognition of a Grant

The initial recognition of a grant typically involves recording a debit entry to an asset account (such as cash or bank) or an expense account if the grant is used for specific costs already incurred. A credit entry is made to a liability account if the grant includes performance obligations. If there are no performance obligations, it might be credited directly to a revenue account.

Examples of Journal Entries for Different Grant Types

Consider a scenario where a business receives a government grant of $50,000 for purchasing a new piece of machinery:

• Initial Receipt:
• Debit: Cash/Bank $50,000
• Credit: Grant Liability $50,000
• This entry records the grant received as a liability because it is associated with purchasing specific machinery.
• Recognition upon Purchase of Machinery:
• Debit: Grant Liability $50,000
• Credit: Income from Grant $50,000
• Once the machinery is purchased, the grant can be recognized as income, reducing the liability and increasing revenue.

These entries ensure compliance and provide clarity in financial reporting. Businesses managing multiple grants, particularly in non-profit sectors, are advised to implement a robust accounting system that tracks conditions and obligations efficiently.

Are Grants Recorded As Revenue?

Sometimes, but not always, and rarely on receipt. Whether a grant hits revenue—and when—depends on the type of grant and the conditions tied to it. Operating grants generally become revenue as the related costs are incurred; capital grants are spread over the life of the asset; and grants with unmet conditions sit as deferred income until those conditions are satisfied.

Revenue Recognition for Operating vs Capital Grants

When accounting for grants, distinguishing between operating and capital grants is crucial, as this impacts whether they are recorded as revenue. Operating grants, typically intended to cover specific operational expenses, are recognized as revenue in the period they are earned, aligning with the Generally Accepted Accounting Principles (GAAP). This means that they are recorded when conditions attached to the grant are met, not necessarily when funds are received. In contrast, capital grants, usually allocated for the purchase of assets or infrastructure development, may not be recognized as revenue in the traditional sense. Instead, they might be deferred and recognized over the useful life of the asset purchased.

Implications for Financial Reporting

The manner in which grants are recorded can significantly affect a company’s financial statements. Recording grants as revenue can increase the reported income, which may be crucial for maintaining financial health ratios and presenting an attractive profile to investors. However, failing to align the timing of revenue recognition with the fulfillment of grant terms could lead to financial misstatements, impacting investor trust and the business’s perceived financial stability. As such, businesses, particularly small enterprises, should establish stringent policies for tracking and reporting grant conditions and timing to ensure accurate financial reporting.

Not-for-Profit Organizations’ Revenue Recognition

For not-for-profit organizations, recognizing grants as revenue involves additional layers of complexity due to different reporting requirements. Under GAAP, these organizations must comply with standards such as ASC 958, which provides guidance on accounting for contributions received and made. This includes recognizing contributions as revenue when promised, provided any performance barriers are met, and the contribution’s purpose is substantiated. For both not-for-profit and for-profit entities, accounting for grants not only supports compliance but also transparency, which is essential for maintaining donor trust and organizational reputation.

What Is The Asc For Grant Accounting?

Understanding the ASC (Accounting Standards Codification) guidelines is essential for managing grants effectively. The ASC provides a comprehensive framework that ensures consistency and clarity in financial reporting, especially when it comes to grant accounting.

Standard	Applies to	Covers
ASC 832 (incl. ASU 2025-10)	Business (for-profit) entities	Recognition, measurement, presentation, and disclosure of government grants; based on IAS 20
ASC 958-605	Not-for-profit entities	Contributions and grants; conditional vs. unconditional
ASC 606	Business entities	Revenue from contracts with customers—applies when a “grant” is really an exchange transaction
IAS 20 (IFRS)	IFRS reporters / by analogy	Government grants and disclosure of government assistance

ASC 832 and ASU 2025-10 (Business Entities)

For for-profit businesses, ASC 832 is now the home of government-grant guidance. ASU 2025-10 added recognition, measurement, and presentation rules to ASC 832, drawing on IAS 20. It defines a government grant as a transfer of cash or a tangible asset from a government that is not an exchange transaction, and it distinguishes asset-related grants from income-related grants. Effective dates: fiscal years beginning after December 15, 2028 for public business entities, and after December 15, 2029 for all others, with early adoption permitted. If your business currently analogizes to IAS 20 or ASC 958-605, now is the time to review your policy against the new standard.

Overview of ASC Topics Relevant to Grants

For businesses and organizations handling grants, certain ASC topics are particularly relevant. For instance, ASC 958-605 covers guidance for not-for-profit entities on revenue recognition from grants and contributions. It outlines principles that these entities must follow to accurately report revenues that are recognized from grants.

Additionally, for business organizations, ASC 606, which deals with revenue from contracts with customers, may also intersect with revenue recognition from grants, depending on the nature of the grant or contract terms.

Application of ASC 958 for Not-for-Profit Entities

Not-for-profit entities must pay particular attention to ASC 958, as it is specifically tailored for handling contributions and grants. This standard distinguishes between contributions, which are nonreciprocal transactions, and exchange transactions. Grants are typically categorized as contributions under ASC 958, requiring them to assess whether conditions or restrictions have been met before recognizing the grant as revenue.

Moreover, ASC 958-605 provides detailed criteria to differentiate between conditions and restrictions, guiding organizations on how to reflect these in their financial statements accurately.

Guidance on Updating Accounting Practices Based on the ASC

Organizations must stay informed about updates and amendments to the ASC to ensure compliance. This can involve reassessing accounting practices and ensuring that all elements of grant agreements are carefully reviewed. By doing so, entities can effectively align their accounting methods with ASC requirements, facilitating transparent and reliable financial reporting.

As part of their strategic management, organizations should consider training their staff or engaging expert consultants to navigate the complexities of ASC-related grant accounting. This proactive approach will not only enhance compliance but also optimize the management of financial resources derived from grants.

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This article is general information, not accounting or tax advice. Grant accounting depends on your specific facts and the latest standards—confirm treatment with a qualified CPA before recording or reporting.