Lessons · Accounting · who imposed the restriction, and why it matters
Who imposed it, and why that changes what you can do
A restriction imposed from outside -- by a donor, a grant agreement or a law -- can only be lifted by the person who imposed it. A limit the organisation's own board set on itself can be changed by that same board, because it is a policy rather than an obligation.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
The two look identical in a set of accounts and behave completely differently. A board that believes its own designation is binding will refuse to use money it is entitled to use, sometimes while making people redundant. A board that treats a donor's restriction as its own policy commits a breach. Both errors come from not asking who imposed it.
How to think about it
For each restricted balance, find the document that created the restriction and the party it came from. If it came from outside, only they can release it. If the board created it, the board can undo it, in a minuted decision.
Worked example
A grant agreement specifying a projectExternal. Only the funder can vary it.
A donation given for a stated purposeExternal. The donor's intention governs.
A board decision to set money aside for a future buildingInternal. The board can change its mind.
Both appear as a balance somebody is not spendingWhich is why the source has to be recorded, not remembered.
Your turn
Name who can lift a restriction that came from outside the organisation.
Only the party who the restriction can lift it
Solve one, graded on the server
The trap
Recording a board designation in the same place as a donor restriction. They will be treated the same by whoever reads the accounts next, and one of those two mistakes costs the organisation money it was entitled to use.