What Are Unrestricted Net Assets?

Unrestricted net assets are any type of assets that are not by law or regulation limited in the way they may be used by the holder or owner. The term more commonly refers to assets held by a government that are not specifically earmarked or committed to use within a defined area of the overall governmental structure. Assets of this type may be freely utilized in any area of the operation required, without being temporarily or permanently allocated to that one area.

The benefit of unrestricted net assets for both a government and even a business is that the assets can be applied in whatever manner is needed to support the ongoing operation of some essential function or project. Since the assets are not specifically assigned to one area of an operation, they can be diverted on an as-needed basis. In the interim, the assets can continue to be utilized as a means of generating interest income that in turn helps to strengthen the value of those assets. Even when the unrestricted net assets are called upon to provide additional support for a particular project, the understanding is that the allocation may be revoked at any given point in time. This open-ended approach means that there is not even a temporary assigning of the assets to a specific project that includes a start and end date.

Just about any type of government operation will have some mechanisms in place to identify and account for unrestricted net assets. This includes a local municipality, a state or provincial government, or even a national or federal government. In each case, the government must define how to identify a net asset as unrestricted and have a clear and concise process in place for accounting for that asset, making sure that process is within the scope of current laws and regulations.

Accounting for unrestricted net assets within the financial records of the business will call for making use of generally accepted accounting principles. Those basic principles will be used to define a specific manner of accounting for the amount of unrestricted net assets that are currently held, and also identifying when and if any of those assets were used for a specific task or operation during the accounting period under consideration. This process makes it possible to track not only the amount of the assets but also when and how much of those assets were used for various projects over the course of an accounting year.