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All resources (revenues) of an institution are initially classified as either unrestricted or restricted. This concept is applied to all of the fund groups, though particularly the current funds. From the Audit Guide Statement of Position (SOP):

The Current Funds group has two basic subgroups—unrestricted and restricted. Unrestricted current funds include all funds received by the institution for which no stipulation was made by the donor or other external agency as to the purposes for which the funds should be expended. Restricted current funds are those available for financing operations, but which are limited by donors or other external agencies to specific purposes, programs, departments, or schools. Externally imposed restrictions are to be contrasted with internal designations imposed by the governing board on unrestricted funds. Internal designations do not create restricted funds, inasmuch as the removal of the designation remains at the discretion of the governing board [Board of Regents or unit management as appropriate].

The distinction between unrestricted and restricted funds is maintained through the use of separately balanced groups of accounts [funds] in order to provide acceptable reporting of stewardship to donors and other external agencies.

This distinction also emphasizes to governing boards and other sources of financial support the various kinds of resources of the Current Funds group that are available to meet the institution’s objectives.

Separate accounting entities may be provided for auxiliary enterprises, hospitals, and independent operations in either the Unrestricted Current Funds or the Restricted Current Funds subgroup or both, as appropriate.

The first question to ask about every revenue dollar is whether it is an unrestricted or restricted resource. For example, has the resource provider limited the institution’s use of the funds for a specific purpose such as financial aid, a specific sponsored project or capital construction project, a specific department such as the Chemistry department, a specific school such as the School of Education, or a specific campus such as ��������Ƶ Boulder? For instance, a gift may be made to the Chemistry department and be unrestricted as to what Chemistry can use it for. However, because the donor specified the gift is to be used only for the Chemistry department, the funds are considered to be restricted.

A good test to use in determining whether or not revenue is restricted is to ask if the resource provider has the right to object and demand a return of the funds if the university were to use the funds in a different manner. If the answer is yes, then these funds are restricted in some way and therefore are restricted funds. If the answer is no, and the Board of Regents or appropriate unit officer is free to direct the use of the funds for any legal purpose, then these are unrestricted funds.

If the restrictions are such that the funds can only be used for student loan fund or plant fund purposes, then the funds must be reported as revenue of those respective fund groups. It is inappropriate to report these funds as revenue of the current funds (with a cash and fund balance transfer to the other funds), since according to the restrictions these funds are not available to fund current operating expenses.

The concept of unrestricted vs. restricted funds is critical and carries through into the statement of net position.

Net Position

• Invested in capital assets, net of related debt
• Restricted for:
  • Nonexpendable:
  • Expendable:
• Unrestricted

Although these are entity-wide statements, there is still a certain amount of fund accounting carried over in order to provide these categories of net position.

The mandate to maintain restricted funds separately from unrestricted funds makes it inappropriate to process cash transfers between these funds.

The use of the term “unrestricted” does not imply that those funds can be spent freely. They are still subject to university policies, procedures and internal designations which limit how the funds can be spent.