2 CFR 200.502, explained in plain English

The test

Activity, not payment. That single sentence is why organizations that track cash miscount, in both directions.

What counts

• Expenditures and expenses under grants, cooperative agreements, cost-reimbursement contracts, direct appropriations and Indian Tribe compacts
• Disbursements to subrecipients, counted by you when you disburse
• The use of loan proceeds
• Receipt of property, including surplus property
• Receipt or use of program income
• Distribution or use of food commodities
• Disbursement of interest subsidy amounts
• Periods when insurance is in force

The five that surprise people

1. Loans keep counting

   New loans made during the year count, and so do prior-year balances where continuing compliance requirements remain. A loan does not fall out of the calculation just because it was drawn years ago.

2. Endowments count every year

   A federally restricted endowment counts its cumulative balance as expended in each audit period the restriction remains. This is the item most likely to push an organization over the line without any new money arriving.

3. Free rent counts only in context

   Free rent on its own is not a federal award. Free rent received as part of a federal program award is, and it is valued at fair market value or the agency's assessed value.

4. Medicare does not count; Medicaid usually does not

   Medicare payments for patient care are not federal awards expended. Medicaid is not either, unless the State requires it to be treated on a cost-reimbursement basis.

5. Non-cash is valued, not ignored

   Donated property and commodities are counted at value. An organization distributing significant commodities can cross the threshold with very little cash.

What to do with this

Maintain the running total by program using this definition, not your bank balance, and revisit it when a loan, an endowment restriction or a commodity program enters the picture. If you are within sight of $1,000,000, the calculation is worth an auditor's eye before year end rather than after.

This is general information, not legal or accounting advice. Federal grant rules change and are applied differently by different agencies and auditors. Check with your auditor, your grant officer, or an attorney before relying on any of it.

The Ember tool for this

Ember Budget

Ember Budget tracks what each program and grant has raised and spent. It keeps restricted funds separate, so the numbers you report tie to the numbers in your books. Unlimited users on every tier.

Sources: 2 CFR Part 200 (eCFR), read 1 September 2026. Federal grant rules change; check the current text before relying on this.