Board Designated Net Assets

By Lawrence Gebhard, CPA

One of the biggest misconceptions in the world of non-profit accounting has to do with board designated net assets.  Net assets are simply the excess of assets over liabilities of an organization.  Net assets are classified into one of the three categories, depending on the absence or presence and nature of donor-imposed restrictions.
 

• Unrestricted net assets - not restricted either by donors or by law
• Temporarily restricted net assets - limited by donor-imposed time restrictions or purpose restrictions
• Permanently restricted net assets - restricted by donor or by law to be maintained by the organizations in perpetuity.

 Board designated net assets are voluntary board-approved segregations of unrestricted net assets for specific purposes, projects or investments.  Oftentimes the board of a non-profit organization will approve a designation as an aid in planning future expenditures.  Since board designations are voluntary and may be reversed by the board at any time, designated net assets are not restricted.

Financial statement presentation of board designated net assets may either be presented on the face of the statement of financial position or may be disclosed in the notes to the financial statements.  The following example illustrates a presentation of net assets that include board designated net assets on the statement of financial position.

Unrestricted net assets

Board designated for:

     Equipment                                   $  25,000

     Long-term investment                     15,000

     Scholarship fund                               5,000

Undesignated                                     150,000

         Total unrestricted net assets     195,000

Temporarily restricted net assets         135,000

Permanently restricted net assets          75,000

  Total net assets                     $ 405,000

Designating net assets can be a valuable planning tool for the board.  An important thing to remember if a board decides to designate net assets is to be sure that the board votes on it and that it is recorded in the minutes.

Please contact anyone in the non-profit team at Winter, Kloman, Moter & Repp, S.C. if you have any questions or need clarification on board designated net assets.