Restricted Asset

Restricted Asset

A restricted asset is cash or another item of monetary value that is set aside for a particular purpose, primarily to satisfy regulatory or contractual requirements. The company must maintain the value of the restricted asset to support its borrowings, and if the company wants to sell the asset, it must obtain consent from the lender and replace it with another asset to collateralize the loan. A restricted asset is cash or another item of monetary value that is set aside for a particular purpose, primarily to satisfy regulatory or contractual requirements. Restricted assets, subject to special accounting procedures, are segregated from other assets to mark clear delineations of their use. The proceeds the city receives from this type of municipal bond must be used for their stated purpose such as improving roads, building a new high school auditorium, upgrading sewers, installing park lights, and so on — just as long as these projects are well defined with parameters regarding time, budget, rules, and personnel.

Restricted assets are cash or other valuable item set aside for a specific purpose.

What Is a Restricted Asset?

A restricted asset is cash or another item of monetary value that is set aside for a particular purpose, primarily to satisfy regulatory or contractual requirements. Restricted assets, subject to special accounting procedures, are segregated from other assets to mark clear delineations of their use. Private sector companies, nonprofit organizations and government bodies all transact with various forms of restricted assets.

Restricted assets are cash or other valuable item set aside for a specific purpose.
A restricted asset can be collateral for a loan.
An example of a restricted asset in a municipality would be revenue bond proceeds.

How a Restricted Asset Works

For a company, a restricted asset can take the form of collateral for a loan. The company must maintain the value of the restricted asset to support its borrowings, and if the company wants to sell the asset, it must obtain consent from the lender and replace it with another asset to collateralize the loan. Restricted cash and investments held by securities firms and trading and clearing exchanges for regulatory purposes are common in the finance sector.

Restricted assets are subject to special accounting procedures.

In the nonprofit world, restricted assets are funds that must be used for purposes specified by donors. Restricted assets would fund an endowed chair or department at a university. A donation to a homeless shelter for bathroom renovations would have to be segregated and accounted for separately from the general budget of that nonprofit organization. For the most part, however, donations to nonprofit groups are unrestricted, which means they are free to spend the funds as they see fit.

Government agencies also deal with restricted assets. A port authority of a city, for example, holds restricted assets in the form of lessee deposits. Another example of a restricted asset in a municipality is the proceeds from a revenue bond. The proceeds the city receives from this type of municipal bond must be used for their stated purpose such as improving roads, building a new high school auditorium, upgrading sewers, installing park lights, and so on — just as long as these projects are well defined with parameters regarding time, budget, rules, and personnel.

Related terms:

501(c)

501(c) is a designation under the United States Internal Revenue Code that confers tax-exempt status to nonprofit organizations. read more

Charitable Gift Life Insurance

Charitable gift life insurance is a method of contributing to charity by taking out life insurance on yourself with the charity as a beneficiary. read more

Donor-Advised Fund

A donor-advised fund is a private fund administered by a third party, created for managing charitable donations on behalf of an organization, family, or individual. read more

Earmarking

Earmarking means to set money aside for a specific purpose, which applies to both individuals and organizations. read more

Mergers and Acquisitions (M&A)

Mergers and acquisitions (M&A) refers to the consolidation of companies or assets through various types of financial transactions. read more

Municipal Bond

A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures.  read more

Restricted Fund

A restricted fund segregates certain assets that have been earmarked for a specific, limited use, often directed by a particular donor. read more

Unrestricted Cash

Unrestricted cash is cash that's readily available to be spent for any purpose and has not been pledged as collateral for a debt obligation. read more

Unrestricted Net Assets

Unrestricted net assets are donations to nonprofit organizations that can be used for any of the organization's expenses or objectives. read more