Temporarily Restricted Net Assets, or TRNA, are a measure of equity. TRNA are adjusted on the balance sheet periodically, typically once a year as part of an audit. They are distinct from Permanently Restricted Net Assets and Unrestricted Net Assets. Both types of restricted net assets are reserved for a given purpose and cannot be leveraged in all situations. Unrestricted net assets, by contrast, can be used for any purpose.

Equity is the fiscal measure of an organization’s worth. Equity increases annually by the prior year’s net income, which accumulates in Retained Earnings. The portion of a year’s net income that is not restricted is unrestricted.

TRNA increases when a funder contributes temporarily restricted income. If a donor specifies that their contribution is for a certain purpose in a given time period, the income is temporarily restricted. For example, a foundation might specify that their $10,000 grant is for Campaign A only, and the funds are to be used during a term ending one year of the grant agreement. For the period of that year, the organization must show that it applied up to $10,000 in expenses to Campaign A in order to relieve that restriction. If the grant term ends after the fiscal year ends, a portion of those funds must remain in TRNA.

The exact calculation of TRNA for an audit is an in-depth process that requires review of each restricted grant or donation on an individual basis. In general, from a fiscal management standpoint, it is better to earn unrestricted funding than it is to earn restricted funding. Unrestricted funding can be used for any program work the organization supports. Restricted funding must satisfy requirements that can hinder flexibility, especially when funding shortfalls occur. If an organization does carry a TRNA balance, it is best to keep this balance at a manageable level by either satisfying the restrictions or earning a greater portion of unrestricted funds overall.

For more on how your departments relate to your TRNA, see How Sutro Li uses departments.

Alex Nitta

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