Understanding Funds and Net Assets

Fund accounting exists because a nonprofit’s money isn’t all the same kind of money. A grant earmarked for a specific program isn’t available to cover payroll, even though it sits in the same bank account. Unity enforces that separation at the fund level.

The three fund types

Every fund in Unity is one of three types:

• Unrestricted — available for any purpose consistent with your mission.
• Temporarily Restricted — donor-restricted to a purpose or time period; the restriction is released once that purpose is met or the period passes.
• Permanently Restricted — donor-restricted in perpetuity, most commonly an endowment where only the investment income is spendable.

A donor’s intent, not your organization’s preference, determines which type applies — restriction enforcement lives in the fund itself, so it’s consistent no matter who is recording a transaction.

How funds map to Net Assets

On your Statement of Financial Position, funds roll up into the two Net Assets categories nonprofit GAAP requires:

Fund type	Net Assets classification
Unrestricted	Net Assets Without Donor Restrictions
Temporarily Restricted	Net Assets With Donor Restrictions
Permanently Restricted	Net Assets With Donor Restrictions

This is why Unity’s chart of accounts uses “Net Assets” in the 3000s rather than “Equity” — a nonprofit balance sheet reports on stewardship of restricted and unrestricted resources, not ownership.

Every transaction carries a fund

Because restriction enforcement happens in the fund itself, every journal entry line in Unity requires a fund assignment before it can post. This is what makes it possible to run a Statement of Activities by fund, and to prove to an auditor or grantor that restricted money was only ever spent on its intended purpose.

Next steps

• See how funds connect to your ledger in Chart of Accounts Basics.
• Look up related terms like donor restriction or net assets in the Nonprofit Finance Glossary.