How to Track Restricted and Unrestricted Funds in a Nonprofit
Every nonprofit receives two types of funds-restricted and unrestricted-but not every organization tracks them correctly. This blog explains the difference and how accurate bookkeeping keeps you compliant and audit-ready.
What Are Restricted vs Unrestricted Funds?
Restricted Funds
- Donor-specified use (e.g., “only for new building,” “only for scholarships”)
- Must be tracked separately and spent according to donor intent
Unrestricted Funds
- General operating funds
- Can be used for salaries, rent, utilities, or any need
Why Tracking Matters
Legal and Ethical Obligation
- Misusing restricted donations can lead to donor disputes or legal action
Grant Compliance
- Foundations often require proof of how restricted funds were spent
Financial Transparency
- Boards and donors want to know how funds are used and what’s left in each category
Test Case
A youth nonprofit was using a single bank account and general ledger. Donors began asking for spending breakdowns. Within 45 days of working with us:
- We created separate fund accounts in QuickBooks
- Reclassified $82,000 in restricted income
- Built monthly fund reports for the board and development team
Need help tracking donations by fund? Our nonprofit bookkeeping services include restricted and unrestricted fund reporting.
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FAQs
Do I need separate bank accounts for each fund?
No. You can use one bank account and track funds separately in your accounting system.
What software do you recommend?
QuickBooks with class or fund tracking, or Xero with tagging.
Can you help if our restricted funds were miscategorized in the past?
Yes. We can reclassify historical data and provide updated reports.
Managing restricted vs. unrestricted funds doesn’t have to be complicated. Our nonprofit bookkeeping handles it with precision.
Nonprofit Bookkeeping in North Carolina ensures proper fund classification and reliable reporting for mission-driven organizations.
Nonprofit Bookkeeping in Phoenix, Arizona 85001 delivers accurate tracking of grants, donations, and expenses at the local level.
Trust is built through transparency. Let RemoteBooksOnline help you honor donor intent and stay financially clear.
