Which policy statement is true regarding how a not-for-profit should handle spending restricted resources when a mix of restricted and unrestricted funds is available?

• A. Restricted resources must be used after unrestricted resources are exhausted.
• B. The organization uses restricted resources first.
• C. Restricted and unrestricted resources are always spent in equal proportions.
• D. There is no policy for spending order.

Answer: (B)

The key idea is honoring donor-imposed restrictions. When a not-for-profit has both restricted and unrestricted funds available, expenditures should be charged first to restricted resources so those donor-imposed constraints are met. Once the restricted net assets are depleted or the restrictions are satisfied, the organization can use unrestricted net assets. This ensures that funds designated for a specific program, time frame, or purpose are used for that purpose before dipping into unrestricted resources.

Using unrestricted resources first would ignore the donor’s intent and could violate the restrictions. Spending in equal proportions is arbitrary and not a policy. Saying there’s no policy ignores the established practice of honoring restrictions.