Restricted account definition
/What is a Restricted Account?
There are several types of restricted accounts, depending on the context. In the following sections, we address what the concept means in different situations.
Endowment Fund Restricted Account
An endowment restricted account is a type of fund held by a nonprofit organization in which the principal is permanently restricted and cannot be spent. The funds are typically donated with the condition that only the investment income or a portion of it may be used for specific purposes defined by the donor, such as scholarships, research, or facility maintenance. The goal is to provide a lasting source of income to support the organization’s mission over time. These accounts are subject to legal and fiduciary oversight to ensure compliance with donor intentions. As such, they play a crucial role in long-term financial planning and sustainability.
Investment Brokerage Restricted Account
A restricted account is a margin account that contains less than the mandated amount of equity, as required by Regulation T or the standards of the individual brokerage (if higher). The situation arises when the aggregate market value of shares purchased on margin falls below the amount of the loan used to acquire them. When sales are made from this account, the proceeds are used to reduce the shortfall. Once the shortfall has been cleared, the restriction is removed and the account owner can begin to make purchases again.
Trust Fund Restricted Account
A trust fund restricted account is a financial account where assets are held specifically for a designated purpose, under legal or contractual restrictions. These funds are often managed by a trustee and cannot be freely accessed or used for general operations by the entity that owns them. Common examples include funds set aside for scholarship programs, capital projects, or debt repayments. The restrictions ensure the money is used only for its intended purpose, in accordance with donor instructions or legal agreements. Proper accounting treatment requires separate reporting to maintain transparency and accountability.
Terms Similar to Restricted Account
A restricted account is also known as a blocked account.