Tracking Restricted vs Unrestricted Funds

Nonprofit accounting requires careful tracking of how funds can be used. This guide explains fund restrictions and how to manage them in GrantLink.

Understanding Fund Restrictions

Net Assets Without Donor Restrictions

Previously called "unrestricted funds":

• No donor-imposed limitations
• Board can use for any purpose
• Includes operating revenue, general donations

Net Assets With Donor Restrictions

Previously called "restricted funds":

• Donor specified how funds must be used
• Must track purpose and/or time restrictions
• Release when restrictions are met

Types of Restrictions

Purpose Restrictions

Funds must be used for specific purposes:

• "For the youth program"
• "To purchase equipment"
• "For scholarships"

Time Restrictions

Funds must be used during specific periods:

• "For fiscal year 2025"
• "Not to be spent before January 2026"
• Multi-year grants with annual budgets

Perpetual Restrictions

Principal must be maintained forever:

• Endowments
• Investment of income is allowed
• Principal cannot be spent

How Grants Relate to Restrictions

Most grants are purpose-restricted:

• Award specifies allowable costs
• Budget defines spending limits
• Unspent funds may need to be returned

When Restrictions Are Released

Grant restrictions release when:

• Funds are spent on allowable costs
• Time period passes
• Reporting is completed and accepted

Tracking in GrantLink

Setting Grant Restriction Type

When creating a grant:

1. Select Grant Type:
   • Unrestricted
   • Temporarily Restricted
   • Permanently Restricted
2. Add restriction notes if needed
3. Save

Monitoring Restricted Funds

Dashboard shows:

• Total restricted funds by grant
• Spending against restricted amounts
• Remaining restricted balances

Releasing Restrictions

As funds are spent appropriately:

1. Allocations reduce restricted balance
2. GrantLink tracks the release
3. Reports show the activity

Reporting Implications

Statement of Financial Position

Shows net assets by category:

• Without donor restrictions
• With donor restrictions

Statement of Activities

Shows:

• Revenues by restriction type
• Expenses (reduce restrictions)
• Net assets released from restrictions

Notes to Financial Statements

Disclose:

• Nature of restrictions
• Composition of restricted net assets
• Time and purpose restrictions

QuickBooks Integration

Chart of Accounts Setup

Consider separate accounts:

• Temporarily Restricted Revenue
• Permanently Restricted Revenue
• Net Assets - Restricted

Tracking with Classes

Use QuickBooks Classes to:

• Identify restricted funds by grant
• Generate restriction reports
• Match GrantLink allocations

Best Practices

1. Understand each grant - Know what restrictions apply
2. Code correctly from the start - It's hard to fix later
3. Review regularly - Ensure spending matches restrictions
4. Document releases - Track when restrictions are satisfied
5. Reconcile net assets - Match GrantLink to financial statements