Question

vWhat are the rules for when a nonprofit organization should consider a contribution restricted by donors, rather than unrestricted?

Answer 1

Non profit organization aka NPOs are generally not intended to profit making but it doesn't mean they don't make profits.

Every year they recieve donations from various donees and some of these are restricted while other aren't.

Restricted donations are the ones that carries a condition subject to which such donations is receivable or if it's already received then such to fulfillment of some conditions otherwise person have to refund such donation. For example Donation recieved for making a school for unpriveledge children. Now donation is with condition for use of such amount for building school only and not for other purposes. Therefore such donation can be recorded as income only when the condition is fulfilled and in this case it can be reduced from cost of building or credit to profit and loss account.

Unrestricted donations as the name suggests are not given with any terms/condition of use. For example, anonymous donation made. Such donations are credited to Profit and loss account right away as it becomes income of the person.