What it means
A nonprofit may receive money to buy equipment, train a specified group or run a programme over two years. The bank account can show cash, but not all of it is available to pay general salaries or unrelated bills.
A restricted grant schedule shows opening balance, eligible spending, refunds and closing amount by grant. Separate money awarded, cash received and spending authority.
An award letter may promise future instalments that depend on milestones, and those are not cash in the bank, so a manager should see the funding stage before authorising commitments against it. Read the agreement carefully for approved costs, dates, matching requirements, evidence, unused-fund return terms and reporting deadlines.
A payment made from the grant bank account is not automatically eligible spending, because it must meet the purpose and documentation rules and the same cost should not be charged to two grants. Keep source documents for each charge: invoice, payroll allocation, approval and evidence that the activity happened.
Shared costs need a documented allocation basis if permitted, since a total without underlying records may fail a funder review even when the programme did useful work. Cash and accounting balance may differ.
A grant promised but not yet paid can be recognised or disclosed differently from cash received in advance, and conditions may create a liability or another accounting treatment under the chosen reporting framework. Seek qualified accounting advice for a particular set of statements rather than assuming every restricted receipt is revenue immediately.
Track changes in writing. A funder may approve moving unused money to another activity, but staff should not infer permission from silence, and if a programme ends with a balance, check whether the funds must be returned, carried forward or used under an agreed extension.
Provide managers with a usable view: amount awarded, received, spent on approved costs, committed and available under the restriction. A large balance may mean a project is behind schedule, not that the charity has spare unrestricted cash.
For owners and trustees, the balance protects donor trust and programme delivery, making it a decision constraint as much as a ledger number.
In practice
Real-world examples.
Example
A charity receives $100,000 for a training programme and has spent $70,000 on eligible costs. Its management schedule shows a $30,000 restricted balance before other adjustments.
Example
A grant permits equipment only. An office rent invoice cannot be paid from it merely because the charity's unrestricted account is low.
Example
A funder approves a written extension to use an unused balance next year, and finance updates the deadline and grant schedule.
Formula
Calculation
Management restricted grant balance = opening unspent eligible grant funds + new restricted receipts - eligible approved spending - required returns or transfers.
Worked example. A fictional programme starts with $20,000 unspent. It receives $80,000, spends $55,000 on eligible activities and returns $5,000 under the grant terms. Closing management balance = $20,000 + $80,000 - $55,000 - $5,000 = $40,000.
The figure is a grant-management schedule, not an automatic financial-statement revenue or liability balance.Case study
Seen in the real world.
This illustrative and entirely fictional example follows Green Gate Learning, an invented education charity. It received a grant for tablets and teacher training. The finance report showed the full cash receipt as income, while programme managers thought the remaining cash could fund a new general marketing campaign. A review of the grant letter showed that the unspent portion was limited to the specified programme and a reporting date was approaching.
Finance built a grant schedule with receipts, eligible invoices, committed orders and remaining funds. It reviewed the appropriate accounting presentation with its adviser. Green Gate asked the funder for written approval before changing any use. The new schedule stopped a cash balance from being mistaken for free money and gave the programme team a clear delivery plan.
The next report distinguishes orders placed from invoices paid. An equipment purchase is committed but not yet delivered, so Green Gate does not silently count it as eligible spending. The team checks the funder's exact reporting rules and updates its forecast for the remaining period.
Watch out
Common mistakes.
- Treating a restricted cash receipt as unrestricted money available for any operating expense.
- Recording an ineligible cost against the grant or charging the same cost to more than one funder.
- Assuming an unspent management balance is identical to the revenue, liability or reserve shown in financial statements.
Questions
People also ask.
Does a restricted grant need a separate bank account?
The agreement or local requirements may say so. Even without a separate account, maintain a clear grant-by-grant tracking record.
What happens to unused funds?
Follow the agreement: return, extension or approved reallocation may be possible. Get any change in writing.
Is the balance always a liability?
No universal treatment applies. Conditions and the relevant accounting framework determine presentation and recognition.
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