Table of contents
Published October 27, 2026.
Start from the gift agreement
A restricted fund is only as clear as the document that created it. Before reconciling the balance, pull the gift agreement, award letter, or dated donor email and highlight the purpose, time limit, and any spending conditions. If the file contains only a check stub, the restriction is not documented well enough to defend.
Build a small restriction taxonomy
Use a short list of restriction types such as program, geographic, capital, endowment, and time-limited. Tag each gift with one type and a program code. A free-text purpose field invites drift because two coordinators will describe the same restriction differently.
Keep pledges separate from cash
A pledge is a promise, not a deposit. Show pledged, received, and spent amounts on separate lines so a program director cannot mistake an unpaid pledge for available cash. Age the pledge balance and flag any pledge past its expected payment date for a donor conversation.
Reconcile releases with evidence
When a restriction is met, attach the evidence that satisfied it: the program invoice, the completion report, or the donor approval for a change of purpose. The accounting entry alone does not explain why the restriction ended. Reviewers should be able to follow the release from the ledger back to the source document.
Watch endowment and board-designated funds
Board-designated funds are not donor-restricted, and endowment principal is not spendable. Keep the three categories visually distinct in the reconciliation workbook. Mixing them produces a total that looks healthy while the spendable balance is actually negative.
Treat matching gifts and in-kind items carefully
A matching gift may carry the employer's own restriction or deadline. Record the matching sponsor, the eligible gift, and the claim window. For in-kind gifts, record the donor-stated value and the program use, and do not invent a value to balance the ledger.
Set a monthly cadence
Reconcile restricted balances within five business days of the monthly close. Compare the fund ledger to the general ledger, list every difference, and assign an owner and a date. A reconciliation that only happens before the audit is a reconstruction exercise, not a control.
A concrete mismatch
A grant pays for after-school tutoring, but the program code charged the full amount to a general youth fund. The monthly comparison surfaces the mismatch because the restricted balance is still positive while the program line is over budget. Move the cost with a documented reclass and notify the program lead before the next drawdown.
Keep the audit binder ready
Store the agreement, the reconciliation, the release evidence, and the donor correspondence in one folder per restricted fund. Name files with the fund and period. The goal is that an auditor can select a balance and follow it to the original instruction without asking three people where the paperwork lives.
- Gift agreement or award letter
- Restriction type and program code
- Pledge aging
- Release evidence
- Reconciliation sign-off