Endowments are defined as funds "used to accumulate those assets that have been given to the museum (LPM EF) on the condition that the principal of the gift is to be kept intact and that only the investment income it produces can be used to meet the museum's (LPM EF's) needs". This definition confirms the intent of endowment funds: they are investment vehicles whose principal is never touched and will continue in perpetuity.
Accounting standards for non-profit organizations have been mandated by the Financial Accounting Standards Board (FASB). These standards require non-profit organizations to report assets and statements of activity under three funds: Unrestricted, Temporarily Restricted and Permanently Restricted.
NOTE: Once assets are declared as Permanently Restricted, they shall be considered as part of the principal or corpus of the Endowment and may never be reclassified as Temporarily Restricted or Unrestricted.
Unrestricted funds are those that may be used for any purpose deemed appropriate for the LPM EF. When utilizing these funds, there should be a qualifying statement such as "within the organization's operating budget" or, perhaps, "deemed appropriate by the board."
Examples of receipts of funds of a general nature
*** Current Operating Funds
Examples of receipts of funds peculiar to the LPM EF:
*** Board Designated Funds (for various projects)
*** Unsolicited donation without restrictions by the donor
Examples of uses of funds peculiar to the LPM EF
*** Temporarily Restricted funds which the board of directors, at their discretion, declare as Unrestricted funds such as Interest,dividends, realized capital gains
*** Distributions to the Lynden Pioneer Museum per the Investment Policy Statement
*** Operating expenses such as salaries, training, postage, license fees, office supplies, etc.
Restricted funds (Both Temporarily Restricted and Permanently Restricted), are those funds that may be used only for the purpose defined. These include donor restrictions and grants, most of which are given for restricted purposes.
The board of directors also may launch campaigns to solicit donations for specific projects or purposes. When solicitation is made for a stated purpose, even if the donor does not state specifically in the letter of transmittal that it is restricted, if the donor is responding to a solicitation for a specific purpose, the donation then shall be considered restricted.
Temporarily Restricted funds include all monies restricted by outside donors and grantors as well as funds earned as interest, dividends and capital gains. These funds may be transferred to Unrestricted or transferred to Permanently Restricted or retained indefinitely as Temporarily Restricted.
Examples peculiar to the LPM EF:
Permanently Restricted funds are the true Endowment funds.
*** Donation for a specific project or purpose by a donor or grantor
*** Interest and dividends earned on investments
*** Realized capital gains
*** Unrealized capital gains
Examples peculiar to the LPM EF:
*** Donations solicited specifically for the LPM EF
*** Proceeds from the sale of deaccessioned assets
*** Proceeds from the sale of restricted assets
*** Temporarily Restricted funds which the board of directors, at their discretion, declare as Restricted funds
Source: "Creating and Building Endowments for Small Museum" by Carol Norris Vincent