Which statement about donor restrictions is accurate?

• A. Donor restrictions have no impact on how funds are spent.
• B. Donor stipulations or grant terms limit how funds may be used.
• C. Donor restrictions apply only to cash donations.
• D. Donor restrictions are the same as unrestricted funds.

Answer: (B)

Donor restrictions define constraints placed on contributed resources, telling the organization exactly how those resources must be used. Donor stipulations or grant terms limit use to a specified purpose, time frame, or in perpetuity, which is why this statement is accurate. Because of these limits, restricted funds are treated differently in accounting from unrestricted funds: they are initially shown as temporarily restricted or permanently restricted net assets and are released to unrestricted funds only as the restrictions are satisfied or expire.

Restrictions do affect how funds are spent, and they apply to more than just cash donations—any contributed asset can carry donor-imposed terms. Also, restricted funds are not the same as unrestricted funds, which carry no donor-imposed constraints and can be used at the organization's discretion.