Learn about Accounting for Restricted Gifts
Some gifts come with strings attached. Donors or grantors may tell you exactly how they want their money used, such as funding a specific program, a capital project, or an endowment. In nonprofit accounting, these are called restricted contributions, and they require special handling so you stay compliant with Generally Accepted Accounting Principles (GAAP) and honor your donors' wishes.
This article will walk you through the key points about how MonkeyPod supports restricted fund accounting from beginning to end. (Refer to the related Knowledgebase articles at the bottom of the page for specific instructions about how to record grants, donations or pledges.)
What are donor-restricted funds
A donor-restricted gift is a contribution where the donor specifies how and/or when the money must be used. Your nonprofit is obligated to follow those instructions while remaining true to your mission and compliant with IRS rules.
Restricted funds can come in the form of grants, donations, or pledges. The gifts themselves can be restricted by purpose and/or time. Here are a few examples:
| Example Contribution | Restricted? | Why |
|---|---|---|
| “General support” gift | No | Donor did not limit use |
| Grant for STEM materials | Yes | Purpose restriction |
| Capital campaign gift | Yes | Must be used for a building |
| Endowment gift “principal must remain intact” | Yes | Permanent restriction |
| Board sets aside $50k for emergencies | No (but board-designated) | Not donor-imposed |
| Support for FY 2027 | Yes | Time-restricted |
Understanding requirements around restricted funds
Restricted funds require special stewardship and internal tracking in order to protect donor intent and accurately reflect available cash flow and financial statements.
Nonprofits must:
- Record the contribution as restricted at the time it’s received.
- Track restricted funds separately from unrestricted operating funds.
- Spend them only on the designated purpose (or time period).
- Report on restrictions to auditors and sometimes to donors.
- Release the funds from restriction once the purpose or time requirement is met.
Fortunately, once you record a gift as 'restricted', your MonkeyPod handles the necessary tracking and reporting for you!
How MonkeyPod tracks restricted funds
Let’s say you receive notification of a $50,000 restricted grant for enhanced STEM curriculum, and the grantor will be sending a check later.
MonkeyPod records the restricted gift immediately (according to nonprofit accounting rules), rather than when the restriction is met. This is because you are recognizing both a receivable (an asset) and the contributed income.
- Income will be associated with your MonkeyPod's default Contributions account.
- Receivable will be debited to default Contributions Receivable account.
(You may change either of those default account to a different account when you record the gift. Default accounts maybe be changed by choosing Finance > Automated Bookkeeping from the main menu.)
In addition, MonkeyPod credits a designated restricted net asset account. By tracking your restricted funds in specific net asset accounts, you'll always instantly know how much has been spent and how much remains available.
- When you enter a grant, MonkeyPod automatically creates a restricted net asset account for tracking purposes.
- When you enter a pledge or donation with restrictions, you select a restricted net asset account to use.
- For fundraising pages and embeds that receive restricted contributions, the donation option specifies which restricted net asset account to use.
Though the restricted net asset account is credited, MonkeyPod also tracks the funds in the contributed income account for reporting in the Statement of Activities, Trial Balance, and Budget Actuals.
The Accounting Details tab for the grant, donation, or pledge shows the relationship to the net asset account and the contributed income account.
When payment arrives for a grant or a pledge
When the grant or pledge payment arrives, no revenue is recorded at that point because the revenue was already recognized when the donor made the commitment.
How does this impact reporting?
Statement of Activities
Restricted income is listed separately in it's own column, and also associated with the designated contributed income accounts. Learn more about the statement of activities.
Trial Balance
Restricted gifts are listed under their associated contributed income accounts rather than their restricted net assets accounts.
Budgets
Budgets recognize restricted revenue under the specified contributed income accounts. Adjustments are made to prevent double counting income under both contributions and net assets released from restriction. Learn more about using budgets in your MonkeyPod.