Nonprofits must track how donors limit the use of their gifts. The sections below explain donor restrictions, how grants relate to them, and how to track restricted funds in GrantLink.

Understanding fund restrictions

Net assets without donor restrictions

Before ASU 2016-14, this class was called unrestricted net assets. It has these features:

No donor has limited how you use these net assets.
It can include amounts your board has designated for a purpose. Board designations stay in this class because a board is not a donor.
Contracts, laws, loan covenants, budgets, and fiduciary duties can still limit how you use these net assets, so "without donor restrictions" does not mean the cash is free to spend.

Net assets with donor restrictions

Before ASU 2016-14, these amounts were split between temporarily restricted and permanently restricted net assets. Net assets with donor restrictions have these features:

The donor stated how or when you may use the funds.
You must track each purpose or time restriction.
You release the restriction when you meet it.

Types of restrictions

Purpose restrictions

A purpose restriction limits what you may spend the funds on. Examples include "for the youth program," "to purchase equipment," and "for scholarships."

Time restrictions

A time restriction limits when you may spend the funds. Examples include "for fiscal year 2025," "not to be spent before January 2026," and multi-year grants with an amount for each year.

Perpetual restrictions

A perpetual restriction requires you to keep the gift, usually as an endowment. The donor's terms and state law decide how much you may spend and when. Do not assume that all endowment income is free to spend.

How grants relate to restrictions

Do not assume that a grant is a donor-restricted contribution. Under FASB ASU 2018-08, first decide whether the funder receives commensurate value, which would make the grant an exchange transaction. If the grant is a contribution, next decide whether it is conditional. A contribution is conditional only when the agreement has both a barrier you must overcome and a right of return or release. One agreement can contain both conditions and restrictions. When you recognize a contribution, classify it based on any donor restrictions.

When restrictions are released

A donor restriction is released when you fulfill the stated purpose, when the stated time passes, or both. Spending money or having a funder accept a report releases a restriction only when it meets the donor's actual stipulation. Receiving cash does not create revenue, and spending does not by itself create revenue or a release.

Tracking in GrantLink

Setting each grant's restriction

You can add a grant manually or by uploading its documents. Grants you import start as time or purpose restricted. On the Restricted funds page, under Grants, confirm each grant's restriction as Time or purpose, Perpetual (endowment), or Not restricted, based on the award letter and your accountant's policy. Grants marked Not restricted no longer appear on that page. Keep the agreement and your accounting analysis with the grant.

Monitoring restricted funds

For each restricted grant, the Restricted funds page shows the beginning balance, contributions, releases, adjustments, the ending balance, and the amount ready to release.

Releasing restrictions

GrantLink allocations can support your analysis of a restriction release, but they do not create or post a release under GAAP. Review the donor's stipulation, the evidence, and your release records with your accountant. See Understanding and Using Restriction Releases in GrantLink.

Reporting implications

Statement of financial position

The statement of financial position shows net assets in two classes, without donor restrictions and with donor restrictions.

Statement of activities

The statement of activities shows revenue by class, expenses, and net assets released from restrictions. GAAP reports all expenses as decreases in net assets without donor restrictions.

Notes to the financial statements

ASU 2016-14 requires quantitative and qualitative information about liquidity and the availability of financial assets. It also requires disclosures about the amounts and purposes of board designations and donor restrictions. The format of the notes depends on your facts, so internal fund labels alone are not enough.

Setting up QuickBooks Online

Chart of accounts

Account design varies by organization. GAAP financial statements use two net asset classes, but your detailed records may track purpose, time, and perpetual restrictions separately. Have your accountant approve the chart of accounts and the entries.

Linking grants to QuickBooks Online

In GrantLink, each grant has its own Expenses and Money received links to QuickBooks Online Customers, Projects, Locations, or Classes. GrantLink includes costs assigned to the linked expense records in the grant. You can allocate other transactions from the Ledger or manually. Settings > QuickBooks > Mapping holds shared settings, e.g., the QuickBooks Online accounts that identify restriction release activity, but it does not link grants.

Internal practices

GAAP does not require the practices below.

Read each grant and record its restrictions.
Code transactions correctly from the start, because corrections are harder later.
Review spending against restrictions regularly.
Document each release and the date you met the restriction.
Reconcile restricted balances in GrantLink to your financial statements.

How GrantLink supports this today

GrantLink keeps grant allocations based on QuickBooks Online transactions, along with budget lines, fund receipts, funding shares, documents, reports, and activity history. You can use these records when you prepare for an audit. GrantLink does not replace funder guidance, your accounting policy, or review by your accountant or auditor.

QuickBooks Online stays your accounting record. Allocating a transaction 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 the two net asset classes, liquidity and availability, and disclosures about board designations and donor restrictions.
FASB ASU 2018-08 covers exchange transactions compared with contributions, and conditions compared with restrictions.

Tracking Restricted vs Unrestricted Funds