Restriction Classifications
Restriction classification is an accounting attribute. Only funds given by an outside entity (i.e., gifts or income from endowments) may be recorded in a restricted account. All other types of income are classified as unrestricted on the university's financial statements.
The attribute in the Kuali Financial System (KFS) that represents the restriction classification is the Account Restricted Status Code.
Permanently Restricted
- Assets that will be maintained permanently or invested in perpetuity.
- Can never be removed by actions of the organization, although the restriction can be removed by court order.
- Generally, only includes true endowments.
Temporarily Restricted
- Donated assets that may be used only after a specified period of time or only for a specific purpose, or both.
- The restriction is satisfied either by the passage of time or by actions of the organization.
Unrestricted
- The donor has made no limitations or restrictions on the use of funds (gift is "for Cornell").
- Gifts with restrictions at the college or department level are treated as unrestricted because of a presumption that the volume of expenses incurred during a fiscal year will easily allow the restriction to be met in the same year. This practice is allowed by financial accounting standards under the "first dollar rule."
Department Responsibilities for Managing Restrictions
- Department personnel should have a sound understanding of restriction classifications and be aware of the restrictions on all accounts for which they have responsibility.
- Departments should review all temporarily restricted gift accounts at least annually to ensure that the funds are being spent before unrestricted funds are spent if the donor's intended purpose can be met.
First Dollar Rule and Simultaneous Release
First Dollar Rule
“If an expense is incurred for a purpose for which both unrestricted and temporarily restricted net assets are available, a donor-imposed restriction is fulfilled to the extent of the expense incurred, unless the expense is for a purpose that is directly attributable to another specific, external source of revenue.” Financial Accounting Standards Board (FASB) (Accounting Standards Codification 958-205-45-11).
What does the first dollar rule really mean?
- A department has both restricted gifts and unrestricted funds (e.g., appropriations) in the fiscal year.
- This department has expenses (in unrestricted accounts) during the fiscal year.
- A presumption is made that the department will use the gift funds first (that is, "could have spent it"), thereby releasing the restriction. Since the restriction would be released within the same year, the gift can be recorded as unrestricted.
Simultaneous Release
Simultaneous release allows a not-for-profit organization to recognize a restricted contribution directly in unrestricted net assets if the restriction is met in the same period that the revenue is recognized. Simultaneous release is followed to reduce administrative burden and eliminated for financial statement presentation purposes.
