Donor-Restricted Net Assets
Net assets subject to donor-imposed restrictions on how or when they can be spent.
Definition
Donor-restricted net assets are resources that donors have stipulated must be used for a specific purpose, during a specific time period, or maintained in perpetuity. Under ASC 958, they are reported separately from unrestricted net assets on the statement of financial position.
Why It Matters
Proper tracking of donor-restricted net assets is a legal and ethical obligation. Spending restricted funds incorrectly violates donor intent and can jeopardize tax-exempt status.
Examples
Purpose restriction release
A $100,000 donation restricted to building repairs. When repair invoices are paid, $100,000 is released from restricted to unrestricted net assets.
Endowment
A $1M permanent endowment. The principal stays in restricted net assets permanently; only investment earnings are available for spending.
How Nexus AP Helps
Nexus AP tracks which net asset class funds each invoice and generates reports showing restricted fund usage and remaining balances.
Start Free TrialFrequently Asked Questions
When are donor restrictions satisfied?
When the purpose is fulfilled (purpose restriction) or the time period passes (time restriction). The organization then reclassifies the amount as unrestricted.
Can the board override donor restrictions?
Generally no. Donor restrictions are legally binding. In some cases, courts can modify restrictions through cy pres doctrine, but board action alone is insufficient.
Category
nonprofitRelated Terms
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