Almost every organization, from federal government agencies to local sewing clubs, depend on revenues to sustain their operations. These revenues can come in the form of either exchange or non-exchange revenues. Groups gain exchange revenues when they receive funds for their goods and services of comparable value. Non-exchange revenues are funds that do not require an exchange of equal value.
Conditions of Exchange Transactions
A successful exchange transaction must meet specific conditions. The payor must provide the exact amount agreed upon between the payor and the payee on a specified day and time. In return, the payee must provide the product or service at the date and time specified by the agreement. If either party fails to meet the terms of the purchase agreement, that party may face economic penalties, including late fees, surcharges or even lawsuits.
Examples of Exchange Transactions
Most businesses fund their operations through exchange transactions. For example, a restaurant exchanges a steak dinner for money from its customers. The customers receive something of value in the steak dinner, and the restaurant receives its money, often for a substantial profit. Some non-profit organizations also use exchange transactions for their fundraising efforts. Pancake breakfasts, charity auctions and bake sales are all forums used by non-profit groups that employ exchange transactions.
Conditions of Non-Exchange Transactions
Non-exchange transactions have fewer requirements than exchange transactions. The payee in a non-exchange transaction receives the funds from the payor, but the payee is not required to deliver a product or service of equal value to the payor. Non-exchange transactions are often employed by non-profit organizations and government agencies. These transactions can be voluntary, such as with charitable donations, or compulsory, such as with income taxes and fines for criminal behavior.
Examples of Non-Exchange Transactions
Non-profit groups use non-exchange transactions in their daily operations. For instance, a charity can receive a charitable contribution from a wealthy donor, then apply those funds toward providing meals for homeless families. The donor does not receive the value of the donation from the charity, nor do the homeless families pay for the meals the charity provides. Taxpayers pay income tax to the federal government every year, but they do not directly receive any goods or services of equal value. Instead, the government channels the funds toward providing goods and services for the population as a whole.
- Texas Comptroller of Public Accounts: Characteristics of Exchange and Non-Exchange Transactions
- Nonprofit Accounting Basics: Exchange Transactions
- U.S. Department of Housing and Urban Development: Accounting and Financial Reporting for Nonexchange Transactions: GASB 33
- California State University, Sacramento: Nonexchange Transactions
- University of Louisville: Exchange vs NonExchange Transactions
Living in Houston, Gerald Hanks has been a writer since 2008. He has contributed to several special-interest national publications. Before starting his writing career, Gerald was a web programmer and database developer for 12 years.