What are Permanently Restricted Net Assets?

Permanently restricted net assets are assets held by a nonprofit entity for which donors have imposed usage restrictions that do not expire. Donor permission must be given in order to alter these restrictions. Permanent restrictions are most commonly found when donors contribute large sums to nonprofits, and so are more inclined to control how the funds are used.

Nonprofit entities try to steer most donations away from the permanently restricted net assets classification, so that the contributed funds can be used for ongoing administrative activities and programs.

Example of Permanently Restricted Net Assets

A donor gives $1,000,000 to a university with the stipulation that the principal amount must remain intact indefinitely. The investment income generated by this principal is to be used exclusively to fund scholarships for students studying environmental science. In this case, the $1,000,000 principal is the permanently restricted net asset. The investment income is considered restricted or unrestricted depending on the donor's specifications regarding its use.