If you are a non-profit organization that receives a donation that is specifically intended to use at a later date, your accounting system must be able to display that the money will not be used until the intended date.
If you are moving funds from restricted assets to unrestricted assets it is “releasing funds from restriction.” There should be a line called “Revenue Released from Restriction.” This means that the donation has either been used for the intended purpose or within the designated time period.
Sometimes non-profits receive donations that are intended to be held forever — for example, scholarship funds or endowments. The purpose behind these funds is to create a pool of money that allows for income through investment. Nonprofits are able to use the earnings from the invested assets, but must keep the original donation forever, called “in perpetuity.”
Nonprofits must ensure that their funds, restricted or unrestricted, are reported in a clear, understandable way. It must be clear which funds contain a donor restriction and which funds are without donor restrictions.
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