When an unconditional contribution has a donor restriction, you release the restriction when you fulfill the stated purpose, when the stated time passes, or both. A restriction is not released just because you receive cash or spend money.

The sections below explain how releases work and how to record them.

What "released from restriction" means

The basic steps

When a funder gives you restricted money, follow these steps:

Decide whether the arrangement is a contribution or an exchange transaction. If it is a contribution, decide whether it is conditional.
Recognize an unconditional contribution with a donor restriction in net assets with donor restrictions.
Reclassify the amount to net assets without donor restrictions when you meet the donor's time or purpose restriction.

How releases appear in the statement of activities

The statement of activities shows these items:

Revenue with and without donor restrictions, as recognized under your accounting policy
Net assets released from restrictions, which is the reclassification you made when you met donor restrictions
Expenses, which GAAP reports as decreases in net assets without donor restrictions

A release moves an amount between the two net asset classes. It is not new revenue, and it does not move cash.

Example

Assume a donor gives an unconditional contribution restricted to youth program activity, and the March costs fulfill that purpose.

In January, you receive a $10,000 restricted grant for youth programs. You record $10,000 of contribution revenue with donor restrictions.
In March, you spend $3,000 on youth program expenses. You record $3,000 of expenses. You also record a $3,000 release, which decreases net assets with donor restrictions and increases net assets without donor restrictions by the same amount.

The journal entries

Recognizing an unconditional restricted contribution

Debit:  Cash                                    $10,000
Credit: Contribution Revenue - With Restrictions        $10,000

The entry increases cash and net assets with donor restrictions. If you received the cash before the contribution became unconditional, you may need to record a refundable advance instead. If the grant is an exchange transaction, other revenue guidance applies.

Recording the expense and the release

First, record the expense, which GAAP presents as a decrease in net assets without donor restrictions.

Debit:  Program Expenses                        $3,000
Credit: Cash/Accounts Payable                           $3,000

Second, record the reclassification using the accounts your accountant approved.

Debit:  Net Assets Released - Restricted        $3,000
Credit: Net Assets Released - Unrestricted              $3,000

Effect on the statement of activities

Line	With donor restrictions	Without donor restrictions
Contribution revenue	+$10,000	$0
Net assets released from restrictions	-$3,000	+$3,000
Expenses	$0	-$3,000
Change in net assets	+$7,000	$0

The $7,000 that remains in net assets with donor restrictions is the amount still restricted.

When to release funds

Time restrictions

Suppose a grant says "for fiscal year 2026." If it is an unconditional contribution, you recognize it with donor restrictions, and the date you receive the cash does not control when you recognize it. You release it when the time restriction ends, so spending is not necessarily the trigger.

Purpose restrictions

Suppose a grant says "for youth programming." If it is an unconditional contribution, you recognize it with donor restrictions. You release it as you fulfill the purpose. Qualifying expenses are often the evidence, but spending alone does not prove you fulfilled the purpose.

Time and purpose restrictions

Suppose a grant says "for youth programming in 2026." If it is an unconditional contribution, you recognize it with donor restrictions. You release it only when you meet both restrictions, which means the cost must be a youth program cost incurred in 2026.

Methods of recording releases

Releasing as you incur qualifying costs

When incurring qualifying costs fulfills the donor's purpose, you can release an amount equal to those costs each period. Do not use this method for a restriction that is only about time, or when spending does not fulfill the stipulation.

Advantages:

It is easy to track.
It ties each release to the costs that fulfill the purpose.
It leaves a clear audit trail.

Disadvantages:

It creates more entries.
You must track spending by grant.

Releasing in a periodic batch

You calculate the supported releases for the month or quarter and record them in one entry.

Advantages:

It creates fewer entries.
It works well for many grants.
It fits into the month-end close.

Disadvantages:

You must reconcile carefully.
Releases can lag behind the costs by a few weeks.

Policy for restrictions met in the same period

GAAP allows a policy of reporting donor-restricted contributions as support without donor restrictions when you meet the restrictions in the same reporting period that you recognize the contribution. You must disclose the policy and apply it consistently. ASU 2018-08 added a separate election for donor-restricted contributions that were conditional at first. Both are accounting policy elections, so spending money does not apply them automatically.

Setting up QuickBooks Online

The setup below is only an example. Chart of accounts design and debit and credit direction vary, so have your accountant approve the presentation. Do not treat these entries as universal.

Chart of accounts

Revenue Accounts:
  4100 - Contributions - Unrestricted
  4200 - Contributions - With Donor Restrictions

Net Assets Released Accounts (Revenue section):
  4800 - Net Assets Released - With Donor Restrictions
  4810 - Net Assets Released - Without Donor Restrictions

Month-end release entry

Debit:  4800 Net Assets Released - With Donor Restrictions     $X
Credit: 4810 Net Assets Released - Without Donor Restrictions       $X

$X is the release amount that the donor's stipulation and your accounting policy support. Qualifying costs can support a release of a purpose restriction, but they are not the measure for every restriction.

Release schedule

Keep a schedule like this one.

Grant	Beginning restricted	Qualifying costs or other release evidence	Released	Ending restricted
Grant A	$10,000	$3,000	$3,000	$7,000
Grant B	$25,000	$8,500	$8,500	$16,500
Total	$35,000	$11,500	$11,500	$23,500

Common mistakes

Never recording releases

Some organizations record restricted revenue but never release it. As a result, restricted net assets keep growing, and net assets without donor restrictions show only expenses. To fix the problem, evaluate and record releases when you meet the donor's time or purpose restriction.

Releasing before you meet the restriction

Some organizations release a purpose restriction before they fulfill the purpose, or a time restriction before the time passes. As a result, net assets without donor restrictions are overstated, and the auditor may report a finding. To fix the problem, release only when you meet the donor's stipulation. Spending can be evidence, but it is not the test for every restriction.

Releasing the wrong amount

Some organizations release more or less than the stipulation supports. As a result, net asset balances are wrong and do not reconcile. To fix the problem, keep a rollforward of restricted net assets and calculate each release from the actual stipulation, which can differ from cash spent.

Not tracking by grant

Some organizations combine all restricted funds without tracking each grant. As a result, they cannot tell which grants are overspent or underspent. To fix the problem, track restricted balances by grant.

ASU 2016-14 requirements

ASU 2016-14 replaced the three net asset classes with two classes, net assets with donor restrictions and net assets without donor restrictions. You also need the ASU 2018-08 analysis to decide classification and timing. A contribution is conditional only when the agreement has both a barrier and a right of return or release. Exchange transactions follow other GAAP, such as Topic 606.

Statement of activities

The statement of activities must show these items:

Revenue with donor restrictions, in a separate column or section
Net assets released from restrictions
The change in net assets with donor restrictions
The change in net assets without donor restrictions

Notes to the financial statements

ASU 2016-14 requires information about the makeup of net assets with donor restrictions at the end of the period and how the restrictions affect the use of resources. It also requires the amounts and purposes of board designations. Follow the financial statement format your accountant approves for release presentation and disclosures. GAAP does not require the grant schedule in this article.

Working with your accountant

At month-end

Give your accountant these items:

A schedule of restricted funds by grant
Qualifying costs and other evidence for each restriction
Your calculation of the amounts to release

At year-end

Review these points together:

Each release matches the time or purpose restriction and the supporting evidence.
Ending restricted balances are accurate.
Each restriction is classified correctly.

For the audit

Have these items ready:

Grant agreements that show the restrictions
A schedule of restricted activity by grant
A reconciliation of restricted net assets

How GrantLink supports this today

GrantLink tracks restriction releases that you enter and releases it finds in QuickBooks Online. You can link qualifying grant expenses to a release as evidence, review releases that need attention, and export a release register for reconciliation. Releases are on the Restricted funds page under Grants. See Understanding and Using Restriction Releases in GrantLink for the full workflow.

QuickBooks Online stays your accounting record. Settings > QuickBooks > Mapping is where you choose the QuickBooks Online accounts that identify restriction release activity, and it does not link grants. GrantLink does not decide when you met a restriction, and allocating an expense in GrantLink does not change QuickBooks Online. GrantLink writes to QuickBooks Online only when an admin allows that type of change in Settings > QuickBooks > Permissions and a user reviews and applies the change.

Sources

FASB ASU 2016-14 covers net asset presentation, releases, and disclosures.
FASB ASU 2018-08 covers contributions, conditions, and the policy election for restrictions met in the same period.