Legal Question in Business Law in California

First, your question leaves some uncertainty as to what the money was for -- were you giving the nonprofit money so it could buy this widget for its own use, or did you give the nonprofit the money to purchase the widget from them? In the prior case, you would be making an earmarked donation, and in the latter case, you'd be making a purchase.

When someone purchases a product or service from a business, whether it is a for-profit, nonprofit, co-op or whatever, "revenue" would be a proper designation for the money the seller receives from the purchaser.

When someone donates money, it doesn't seem quite accurate to call the donation by the name "revenue" -- "donations" or "donation income" seem more apt. Ultimately, however, I think it's not terribly important what label the nonprofit applies to the account this money is placed into. What really matters is what they actually DO with the money. Funds donated for a specific purpose should be used according to the donor's instructions, or returned.

Unless you have access to the nonprofit's books and understand what it is really doing, I'd think it was pretty speculative to assume that it was failing to keep records sufficient to trace funds received and apply the amounts correctly.

If you have pretty solid evidence that the nonprofit is misapplying funds, assemble your evidence and contact the attorney general's office.

Your question is on a topic near and dear to my heart - fund accounting for non-profits. I have served as CFO/Treasurer for a few non-profits. I also briefly sold Blackbaud non-profit accounting software years ago. So even though it is not my area of law practice, I know a fair bit about it. There is a problem with meaning of your question, however, and that is regarding what you mean by "accounts." If you mean the accounts in the organizations books, that is very different than if you mean bank accounts. There is no requirement whatsoever that non-profits keep separate bank accounts for revenue generated by operations, if any, versus donations. Nor are they required to differentiate between donation and revenue accounts. Donations ARE revenues. There is also absolutely no requirement that they keep separate bank accounts for restricted versus unrestricted funds. Technically there is also no requirement that they separately account for restricted funds, but failure to do so can get them in trouble if they are audited. If they can prove they followed the restrictions on restricted funds, without full blown fund accounting, however, they will ultimately pass an audit. So if they are told they are getting a donation for purchase of a widget, and they buy a widget, and keep records that they did, then they really have done nothing wrong except a possible technical violation of the Generally Accepted Accounting Principals. If they receive a grant, however, to set up a certain program, and the funds are to be spent in specified accounting periods, then they will need to do a full fund accounting for the grant, setting up a sub-chart of accounts for it, including a sub-balance sheet, and sub-income and expense accounts, all of which must balance internally.