Some funders attach strings to their money: if your organization does not meet the agreed conditions, the unspent amount goes back. Money you might have to repay is not yet income, and booking it as income too early overstates your results. In this page you will find how to recognize a conditional grant, how to book it as a liability, and how to release it to income month by month as you deliver.
🤔 Is the grant conditional?
The decisive question: must unspent or unmet amounts be repaid to the funder?
- Yes → conditional grant: book a liability. This page.
- No (the money is yours; only its purpose is restricted) → earmarked funding: book income in full and a designated fund. See Earmarked funding: booking donor-restricted grants .
Check the grant agreement for: an explicit repayment or clawback clause, performance conditions ("payable upon delivery of..."), spending deadlines, and eligible-cost definitions. When the agreement is ambiguous, ask the funder to confirm in writing which it is.
⚖️ The two treatments side by side
| Title | Earmarked funding | Conditional grant |
|---|---|---|
| Repayment obligation | No | Yes, if conditions are not met |
| Income recognized | In full, on receipt | As conditions are met |
| Balance sheet position | Equity: designated fund | Liability: deferred grant income |
| Unspent at year-end | Fund, via result allocation | Liability, carried forward |
🧮 How the bookings flow
The mechanics below follow Dutch practice. Other frameworks (US GAAP conditional contributions, UK SORP performance-related grants) reach a similar result with their own rules; check what applies to your organization. With US funders the conditions themselves often come from expenditure responsibility rules, and Anti Entropy sets out what those mean for a grantee and what due diligence to expect.
1. Grant received. A funder grants €100,000 for program XYZ; unspent amounts must be repaid:
ASSETS:Liquid assets €100,000 ← cash arrives in the bankLIABILITIES:Deferred grant income €100,000 ← no income yet: conditions not met
2. Monthly: release the liability in line with delivery. In March, €5,000 of eligible program costs are incurred. Two things happen in the same month. The costs are booked as usual:
P&L:XYZ program costs €5,000 ← costs hit the P&LASSETS:Liquid assets -€5,000
And a monthly release journal recognizes the matching income:
LIABILITIES:Deferred grant income -€5,000 ← liability decreasesP&L:Income - conditional grants €5,000 ← same amount recognized as income
Income now matches the eligible costs, the net result effect is zero, and the monthly reports show the program's true position. Make this journal part of every month close, so the liability always equals what is still to be delivered, or repaid.
3. Conditions fully met. The liability reaches zero and the grant is fully in income. If the agreement lets your organization keep an unspent remainder, recognize that remainder as income once the funder confirms in writing that it is yours.
4. Conditions not met. The remaining liability is repaid to the funder. It never touches the P&L.
🔀 Expecting underspend? Reallocate before you repay
The monthly release journal has a useful side effect: the deferred grant income balance always shows how much of the grant is still to be delivered. Program managers should compare that balance to the remaining program plan at every forecast. When the plan no longer consumes the grant, the program is heading for repayment.
Underspend is a program decision before it is a booking. Money repaid is impact the program will never deliver. When you expect underspend, first check whether the remaining budget can fund other activities that advance the same objective.
- Spot it early - Compare the remaining liability to the planned eligible costs at each monthly close or forecast. The earlier the gap shows, the more options remain.
- Check the agreement - Many funders allow shifts between budget lines up to a set percentage; new activities or larger shifts need prior written approval. The eligible-cost definitions and the spending deadline set the boundaries of what a reallocation can cover.
- Propose, don't assume - Where approval is needed, send the funder a short proposal: the expected underspend, the proposed use, and how it advances the agreed objective. Most funders would rather approve a well-argued reallocation than take money back.
- Repay when nothing good remains - A reallocation must genuinely advance the objective. Spending down the budget only to avoid repayment wastes the funder's money and damages the relationship. Repaying an honest remainder is the right outcome, not a failure.
Share every approved reallocation with your finance team, so the release schedule and eligible-cost tracking follow the new plan and the funder's written approval is on file for the audit.
📓 Presenting in the annual accounts
The balance sheet shows the remaining liability as deferred grant income (NL: vooruitontvangen subsidies), split between current and non-current when the grant spans more than a year. The notes describe the conditions and the movement: opening balance, amounts received, released to income, repaid, closing balance. That is the same movement-schedule logic as for designated funds.
⚠️ Common mistakes
| Mistake | Why it's wrong |
|---|---|
| Booking the grant as income on receipt | Overstates results and hides the repayment risk; if conditions fail, you repay money already shown as income |
| Releasing the liability only at year-end | During the year the reports show program costs without the matching income; monthly releases keep management figures true |
| Treating a conditional grant as earmarked funding | Equity versus liability: a fund says the money is yours, a conditional grant is not yours until you deliver |