What is a restricted grant and how should it be tracked?

• A. Funds unrestricted; tracked in a general fund.
• B. Funds donated for a specific purpose; tracked in a restricted fund or ledger code with donor-imposed restrictions.
• C. Funds donated by government; tracked in separate accounts.
• D. Funds used for capital projects only; tracked in depreciation accounts.

Answer: (B)

A restricted grant is funds provided with donor-imposed limitations on how they can be used. Because these restrictions dictate specific purposes, you track them separately from unrestricted funds so you can demonstrate compliance with the donor terms. When the grant arrives, record it as restricted revenue and place it in a restricted fund or use a dedicated ledger code. As you incur eligible expenses, charge those costs against the restricted balance, reducing the remaining restricted amount. If any funds remain after the allowed purposes are met, you handle them according to the donor’s terms (carryover if permitted, release if the restriction expires). This dedicated tracking prevents mixing restricted and unrestricted funds and supports clear reporting to donors and auditors. Unrestricted funds belong in the general fund, and capital-project or depreciation accounts address other accounting needs, not the donor-imposed restrictions of a restricted grant.