Net Assets in Nonprofit Accounting

By: Alec Hollingsworth

Updated:

October 21, 2026

DEFINITION:

Net assets are a nonprofit's residual equity (assets minus liabilities), classified by whether donors have restricted how the resources may be used.

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In nonprofit accounting, net assets equal total assets minus total liabilities. Under FASB ASC 958 (nonprofit GAAP), organizations present net assets in two classes: net assets without donor restrictions (resources available for general use, including board-designated amounts) and net assets with donor restrictions (resources limited by a donor-imposed purpose or time restriction, including those that must be maintained in perpetuity).

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Change in net assets is the increase or decrease in those balances for a period. It plays a role similar to net income in for-profit reporting, but it is presented by net asset class on the Statement of Activities. Accurate classification shows stakeholders what is freely available and what must be used for a donor-specified purpose or time period. Older terms such as temporarily and permanently restricted net assets now fall under the "with donor restrictions" class.

Key Takeaways

Net assets = assets - liabilities (a nonprofit's equity).
Two GAAP classes: without donor restrictions and with donor restrictions.
Change in net assets shows each class's increase or decrease for the period.
Clear classification supports donor stewardship and your Statement of Financial Position.

Why It Matters

Clear net asset reporting helps your board, donors, and auditors understand which resources are available for operations and which must follow donor restrictions.

Real World Example

A youth nonprofit holds $180,000 in cash: $120,000 from unrestricted donations and $60,000 from a foundation grant that must be spent on after-school tutoring within two years. On the Statement of Financial Position, $120,000 is reported as net assets without donor restrictions and $60,000 as net assets with donor restrictions. During the year, the organization spends $25,000 of the grant on tutoring and records a release from restriction. The Statement of Activities shows the change in net assets for each class, not just one combined "profit" figure.

How Aplos Helps

In Aplos, funds are the equity foundation of your books, which makes your net asset picture easier to see.

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You can track restricted and unrestricted activity in separate funds, and fund balances roll up into your balance sheet reporting. Funds represent equity (similar to net assets) and appear on the balance sheet, while tags stay on your income and expense reports.

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For more on the two GAAP classes, see the Net Asset Classification glossary page, and explore Aplos Academy resources on how assets, liabilities, and net assets tell your financial story.

Frequently Asked Questions

What are net assets without donor restrictions?

They are resources with no donor-imposed purpose or time restriction. Your board may still designate unrestricted net assets for reserves or projects, but those designations are internal and the board can change them.

What are net assets with donor restrictions?

They are resources limited by a donor's purpose or time requirement, including perpetual restrictions such as many endowments. They remain restricted until the restriction is met or expires, and are then typically released to net assets without donor restrictions.

What does change in net assets mean?

It is the net increase or decrease in net assets for a period, usually shown by class on the Statement of Activities. It reflects revenues, expenses, gains, losses, and releases from restriction.

How do funds relate to net assets in Aplos?

Aplos funds work as equity buckets. Tracking restricted gifts in their own funds helps keep restricted balances separate and supports fund-based balance sheet reporting.

Net Assets