Net assets released from restrictions
/What are Net Assets?
Nonprofit net assets represent the difference between a nonprofit organization's total assets and total liabilities, essentially functioning as the organization's equity. They are categorized into three classes: unrestricted, temporarily restricted, and permanently restricted net assets, based on donor-imposed stipulations. Unrestricted net assets can be used at the organization's discretion, while temporarily restricted assets are limited by time or purpose, and permanently restricted assets must be maintained in perpetuity (such as endowments). Net assets provide a key indicator of the nonprofit’s financial health and its ability to support ongoing programs and mission-related activities.
What are Net Assets Released from Restrictions?
Net assets released from restrictions refers to those restricted assets that have been re-classified as unrestricted net assets. This transfer occurs because the original donor-imposed restrictions associated with certain assets have been satisfied. The outcome is greater availability of funding for the alternative activities of a nonprofit entity.
Presentation of Net Assets Released from Restrictions
The aggregate amount of net assets released from restrictions appears in a nonprofit entity’s statement of activities. It is highlighted in the following exhibit.
Recordkeeping for Net Assets Released from Restrictions
Nonprofits are required to maintain detailed recordkeeping for net assets with restrictions to ensure compliance with donor stipulations and financial reporting standards. They must clearly distinguish between temporarily restricted and permanently restricted assets, tracking the nature, purpose, and duration of each restriction. Records should document the original gift amount, the specific donor instructions, and any expenditures or releases from restriction.
Related Articles
Permanently Restricted Net Assets