Short answer
A release from restriction journal entry reclassifies money from net assets with donor restrictions to net assets without donor restrictions after the restriction has been met. It does not create new cash or new revenue. It shows that restricted resources became available for use.
The release from restriction journal entry is one of the most important entries in nonprofit accounting. It tells the financial statements that a donor or grantor restriction has been met.
The entry is easy to post. The hard part is knowing when it is allowed and proving the amount.
The basic entry
When a restriction is satisfied, post:
Debit: Net assets released from restrictions, with donor restrictions
Credit: Net assets released from restrictions, without donor restrictionsUse the amount of the restriction satisfied.
This entry reduces net assets with donor restrictions and increases net assets without donor restrictions. Across the full statement, it nets to zero. It is not new revenue. It is a reclassification.
For the full process, link to net asset release workflow.
Example for a purpose restriction
A foundation gives $100,000 for a youth tutoring program. During June, the nonprofit incurs $18,000 of qualifying tutoring costs.
The release entry is:
Debit: Net assets released from restrictions, with donor restrictions $18,000
Credit: Net assets released from restrictions, without donor restrictions $18,000The expense entry is separate:
Debit: Program expense $18,000
Credit: Cash or accounts payable $18,000The release follows the qualifying cost. The nonprofit does not release the full $100,000 just because the grant was awarded.
Example for a time restriction
A donor gives $50,000 in December for use in the next fiscal year. If the only restriction is time, the nonprofit releases the amount when the next fiscal year begins.
The release is tied to the date, not spending. If the gift also has a purpose restriction, both the date and the purpose must be satisfied before release.
This is why the grant or gift letter matters. Finance needs the exact restriction language.
What support to keep
For each release, keep a support packet. It should include:
- Gift letter or grant agreement
- Restriction terms
- Approved grant budget, if relevant
- Expense support or time support
- Release calculation
- Journal entry
- Remaining restricted balance
- Reviewer approval
The support packet does not need to be fancy. It needs to be complete and easy to find.
For policy rules, link to donor restriction release policy guide.
Tie releases to the rollforward
Every release should appear in the net asset rollforward. The with-donor-restrictions column should show a decrease. The without-donor-restrictions column should show an increase.
If the rollforward does not tie, check whether the release was posted to the wrong account, wrong class, wrong fund, or wrong period.
Use nonprofit net asset rollforward guide to review the tie-out.
Avoid common errors
Do not post releases without support. A budget is not enough for a purpose restriction. Use actual qualifying expenses.
Do not treat releases as new revenue. The revenue was recorded when the gift or grant met recognition rules.
Do not release donor restricted funds because cash is needed. Cash pressure does not satisfy a restriction.
Do not forget time restrictions. Money received before the allowed period may need to stay restricted until the period starts.
Do not confuse board designations with donor restrictions. A board-designated reserve does not need a release from restriction because it was never donor restricted.
Post monthly when possible
Monthly releases keep financial statements current. They also help board reports show real progress. If releases wait until year-end, restricted balances may look too high for months and unrestricted results may look worse than they are.
For small organizations, quarterly releases may be acceptable if board reporting is still clear. Grant-heavy organizations should usually review releases every month.
How it appears in reports
On the statement of activities, releases appear as a negative amount in the with-donor-restrictions column and a positive amount in the without-donor-restrictions column.
Expenses usually appear in the without-donor-restrictions column by function. This can confuse board members. Add a note that the release shows restricted money becoming available, while the expense shows how the money was used.
For a plain board view, link to restricted fund accounting basics.
Where GrantPipe fits
GrantPipe can help keep restriction terms, expense support, release notes, and grant records together. That makes it easier to post the right release and prove it later.
Use the grant compliance checklist to test whether your release entries have the support a funder or auditor would expect.
Free resource
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A practical checklist for post-award grant compliance: restricted funds, reporting cadence, audit prep, and common failure points. Delivered by email.
Looking for something else?
- Release from restriction
- The accounting entry that moves an amount out of net assets with donor restrictions after the donor restriction has been met.
DEFINITION
- Reclassification
- An accounting movement between categories. A release changes net asset class but does not create new cash.
DEFINITION
Q&A
What support is needed?
Keep the donor or grant agreement, the expense or time support that satisfied the restriction, and the reconciliation showing the remaining restricted balance.
Q&A
Can releases be automated?
Some systems automate releases from grant coding. Finance still needs to review the support and timing.
Frequently asked