Unrestricted Net Assets

What they are

Unrestricted net assets are funds or resources given to a nonprofit without donor-imposed conditions. The organization may use these assets for general operations, program support, capital expenses, or any other legitimate purpose consistent with its mission.

Key takeaways

• Unrestricted net assets offer maximum flexibility to nonprofits.
• Temporarily restricted assets must be used for a specified purpose or within a set time period.
• Permanently restricted assets (endowments) are held indefinitely; only investment income is typically available for use.
• Restricted gifts can be helpful for donors but may burden nonprofits if the specified use doesn’t match organizational capacity.

Why nonprofits prefer unrestricted gifts

Unrestricted gifts let nonprofits allocate resources where they are most needed—paying staff, responding to emergencies, maintaining facilities, or expanding services. That flexibility helps organizations respond to changing needs and cover essential administrative costs that restricted contributions often won’t.

However, donors may restrict gifts to ensure funds support particular programs or goals. While restrictions can incentivize giving, they can also create operational challenges if the recipient lacks the infrastructure or expertise for the donor’s specified purpose.

Types of net assets

• Unrestricted net assets: No donor restrictions; usable at the nonprofit’s discretion.
• Temporarily restricted net assets: Donor stipulates a purpose and/or time frame (e.g., disaster relief fund to be spent within a year).
• Permanently restricted net assets: Principal must be maintained in perpetuity (e.g., endowment or scholarship fund); income typically supports the designated purpose.

Special cases: gifts of art, artifacts, or property often carry restrictions (such as prohibitions on sale) that affect how the nonprofit manages the asset.

Reporting and financial statements

U.S. nonprofits present net asset classifications on the Statement of Financial Position (similar to a balance sheet) and report changes on the Statement of Activities (similar to an income statement). IRS Form 990 provides templates and disclosures used by many organizations to report financial position and activities to the public.

Monitoring nonprofit performance

Donors and stakeholders can review Form 990s, annual reports, and audited financial statements to assess a nonprofit’s financial health and use of funds. Independent watchdogs evaluate charities for transparency, financial efficiency, and governance. Notable evaluators include:
* Charity Navigator — ratings based on financial metrics and accountability.
* Give.org (BBB Wise Giving Alliance) — accreditation based on standards of governance and transparency.
* CharityWatch — grades charities and analyzes how funds are spent relative to mission.

Use these resources to verify that restricted or unrestricted gifts are managed as intended and that a nonprofit balances program impact with sustainable operations.

Conclusion

Unrestricted net assets are vital for nonprofit flexibility and long-term sustainability. While donor-restricted gifts play an important role in funding specific programs or endowments, unrestricted funds enable organizations to cover essential operational needs and respond to evolving priorities.