Restricted and Unrestricted Net Assets (Equity)

I am consulting with very small organizations (non-profit) in Asia. I have been looking for simple accounting software for them. I think Manager is going to work.
On the Balance Sheet for a non-profit, there is Net Assets (Equity) in two categories - Restricted and Unrestricted. Some projects have had funds designated or restricted by a donor. Other funds were given unrestricted.
I have set up “projects” as divisions. The Income - Expense Sheet looks great.
I need to figure out the Balance Sheet now.
How can I label donations - restricted and unrestricted so that they show up in these two categories on the Balance Sheet. Under Equity (or Net Assets)

Generally restricted donated funds are held in balance sheet liability trust accounts and spent from there and they never get recorded/transferred in to P&L accounts. Unrestricted donations would be income as they would be available for any type of expenditure - self created projects or administration.

A donator gives funds for project A, the funds are banked to a specific BS Liability Trust account and as funds are spent on the project they are deducted from the trust account. Any balance on that account represents unspent funds

@Brucanna but this example about liabilities used for projects are more likely to be used in construction corporations. You’re not far from reality but non-profit organizations don’t have this kind of situations when you have deferred assets (for expenses) and deferred liabilities (for income). Also, fund accounting in non-profit organizations runs different. For example: when you receive money that is restricted (assigned for a sole purpose), you should use the “restricted assets” accounts and that’s because you should use that money for it sole purpose. Government use this because they work by funds assigned to whatever purpose they assign money. Unrestricted assets have no external restrictions regarding their use or function. Unrestricted assets are also called in many organizations “general fund”. So when you use restricted or unrestricted assets is not a liability because you don’t owe anything, you just have to use that fund for its purpose. That fund is assigned for one, two, three or whatever number of “projects” or purpose that is assigned.

To answer the original question, you should use the capital module for this. Just activate it and use it. Manager can give you reports about capital that are great for this kind of purpose too. If you want to show restricted and unrestricted assets in your balance sheet and it is absolutely necessary, then you should create the accounts for that.

Thank you sulfuror! This is so helpful. I am hoping to set up a template that can be used by small non-profits in developing countries. They don’t have resources to buy QB or Peachtree. Manager seems to be just what they need. But I need to understand first so I can help them to adapt to their needs and those who are funding them in small amounts.

1 Like

No its not, I’m a treasurer for several not-for-profit organisations from less then 100,000 to over a million income and all receive various forms of government and non-government funds for specific and non-specific projects.

Funds for the specific projects are received via Debit Bank Acct and Credit BS Liabilities - Project Trust Acct.
Payments for the specific project are Credit Bank Account and Debit BS Liabilities - Project Trust Account.
Any balance would represent unspent funds on the project and possibly repayable.

No you wouldn’t, Capital accounts are for ownership and there is no ownership involved with specific projects as the funds are provided under Trust - Trust that you will spend them the right way. The funds are stored as Liabilities in case the project doesn’t go a head and the funds need to be repaid. You wouldn’t be re-paying capital.

You can do that, but at the end of your accounting period you need to report what’s your Net Asset and that include Unrestricted Assets and Restricted Assets. We know that capital accounts are for ownership but there is no other way in Manager to obtain reports about the movement in capital accounts, and if there is, please, share it with us. Here is an example of entries and reports of non-profit organizations. This is what I think @allforca is trying to figure out how to manage in Manager:

That’s why I recommend to use the capital accounts. But really, if there is another method that can be used in Manager to do this, I would love to know for future references.

Net Assets ='s Equity and Unrestricted Net Assets ='s Retained Earnings
This isn’t terminology that I would ever use in reporting for not-for-profits.

It’s noted that they are using a “Statement of Activity” report rather than an “income & Expenditure Statement” report
so the need to separate internal/external functions is reduced. However, it does seem messy accounting to be constantly transferring amounts between restricted/unrestricted classifications compared to keeping them grouped and itemised within the balance sheet structure

Contributions/donations aren’t capital - they are either revenue or funds held in trust. Tracking codes would be an alternative

I agree on this. Tracking codes could be very useful. Also, I’m not saying that is not right to use liabilities accounts in the balance sheet for classifications, in fact it is convenient if you think about it because that way you can discard making any mistakes in your equity accounts that maybe you can regret later. But due to the description that @allforca is giving in the thread, the restricted and unrestricted assets are in fact equity accounts. But anyways, I agree. Tracking codes would be very useful. As for Capital Accounts, I said that because using capital accounts you could use the report of capital that show you every capital account, increase, decrease and balance for the period. Something like this (sorry, my report is in spanglish but you’ll get the idea):

But @sulfuror, you cannot classify accounts based on what reports are available for different classifications. You have to classify them according to what they are.

Ok, @Tut. So, when is Manager supporting Net Assets accounts and reports for this kind of use? I just said something to @allforca that I thought it could be helpful. Anyways, Capital accounts are Equity accounts. They’re the same but for different type of business. When Manager could provide a module to manage the Unrestricted and Restricted Net Assets and its proper reports, then I’ll recommend using that module.

Perhaps I misunderstood you, @sulfuror. Your posts implied you were trying to use capital accounts to record donations because of a report that was available. If that isn’t what you meant, I withdraw my comment.

Based on my reading of what you are trying to do with restricted and unrestricted assets, you should be able to set up your balance sheet however you want by using groups. There have been several forum topics on that subject.

I do not said that you can receive donations into capital accounts. What I meant to say, and sorry if I said it in some way that people can misunderstand, is that you can use Capital Accounts to create Unrestricted and Restricted Assets sub-accounts so you can use the report I posted to know what’s left on unrestricted and restricted accounts. That should be useful using General Journals every end of the period, re-clasificating the “Profit or Loss” into the “capital accounts”. But you can always create new accounts, like I said.

I just said it because of the report posted above, as a suggestion. I didn’t said it because I think it is how is supposed to be, just like a “hack”, if you must call it somehow.