By Greg Jackson, CPA, Principal at Blue & Co.
Many not-for-profit organizations rely on public support (grants and contributions) to finance their mission. When that public support includes donor-restricted grants and contributions, those restricted amounts must be reported and accounted for in accordance with the related restrictions attached to the funds.
When recording a donor-restricted grant or contribution, the organization must first determine whether it is a restriction that expires by the passage of time or one that can be removed by the actions of the organization, or a contribution that is restricted in perpetuity.
Types of Donor-Restrictions: Expiration vs. Perpetuity
Contributions that are restricted in perpetuity are funds contributed to the organization whose principal, or corpus cannot be touched. The income that is earned on the principal amount can be used according to the donors wishes.
Contributions that have donor-imposed restrictions that expire by the passage of time or can be removed by the actions of the organization are contributions subject to donor stipulations for specific operating purposes or time restrictions.
Examples of Donor-Restricted Contributions
Let’s look at some common illustrations of these concepts.
A contribution from a donor that is restricted for the construction of a playground can only be used on that project (unless permission is subsequently provided by the donor) and is an example of a donor restriction for a specific operating purpose.
A contribution from a donor that is restricted to provide support for a particular period of time or year is an example of a contribution restricted by a time restriction.
Additionally, some donor contributions that do not contain a specific time or purpose restriction are considered implicitly restricted by their nature. For example, if an organization receives a donor pledge for a certain amount payable over multiple years, the contribution is considered restricted until the funds are received.
The above are just a few examples of the types of donor-restricted contributions. If you have any questions regarding whether a contribution is restricted, please contact your local Blue & Co. advisor.
