Under FAS 116, contributions that create endowments are always reported in the statement of activities-never as direct adjustments to equity.

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Under FAS 116 (now included in ASC 958 due to the FASB Accounting Standards Codification), contributions, including those that create endowments, are reported as revenues in the statement of activities, reflecting increases in net assets, rather than as direct adjustments to equity. This ensures that all contributions are recognized in a consistent manner, highlighting the organization's financial activities over the period.

Under FAS 116, Contributions That Create Endowments Are Always Reported