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What is the difference between net assets with donor restrictions and net assets without donor restrictions?

When a donor makes a donation, they can mark it as restricted or unrestricted. When the donation is unrestricted, that means that the NFP entity can use the donation for really anything.

However, when a donation is restricted, the NFP has to use the donation for specific activities (i.e. acquiring PP&E, investment, etc.) The balance sheet must separate net assets that are unrestricted (i.e. no donor restrictions) and net assets with donor restrictions.

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