Question

Discuss whether it is important to differentiate between Revenue earned from an Exchange and Non-exchange transaction. Provide reasons for your answer.

Answer 1

In some transactions it is clear that there is exchange of approximately equal value these are known as exchange transactions. In other transactions entity will receive resources and provide no or nominal consideration directly in return. These are clearly non exchange transactions. There might be some transactions which have elements of both types of transactions.

It is important to differentiate between these both types of transactions beacuse it is important for non profit managers as different requirements for recognition of revenue may apply to exchange transactions that may not apply to non exchange transactions. Also, when planning sources of program funding, it maybe helpful to consider a mix of non exchange and exchange revenues which can provide extra resources for operations. Finally it is important to segregate non exchange and exchange revenues in the accounting system because they must be reported separatelyin the financial statements and form 990