What is the definition of “restricted funding” in nonprofit finance?

The definition of "restricted funding" in nonprofit finance refers to donations that are specified by the donor for particular programs or uses. This type of funding is typically given with conditions attached, meaning that the nonprofit organization must allocate these funds for the specific purposes outlined by the donor.

This is crucial for financial management within a nonprofit, as it helps ensure that contributions are used in accordance with the donor's intentions, often for designated projects or services. Nonprofits must track and report on these funds separately to maintain transparency and accountability, as misusing restricted funds can lead to serious consequences such as loss of donor trust or legal issues.

In contrast, funds that can be used at the nonprofit's discretion are referred to as unrestricted funding, while government grants generally come with their own set of restrictions but are not inherently defined as "restricted funding" unless specifically designated. Similarly, money earned from selling goods or services falls into a different category of revenue entirely and does not pertain to donations or funding restrictions.