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Endowment Accounting for Nonprofits: UPMIFA, Spending Policy and Journal Entries
Last updated: October 8, 2026 · Independent guide · We do not sell rankings or coverage.
Endowment accounting is the set of rules for recording gifts that a nonprofit must invest rather than spend, the investment return those gifts earn, and the amounts the board appropriates each year under its spending policy. For a donor-restricted endowment, the gift and its accumulated return stay in net assets with donor restrictions until the board appropriates them under your state’s version of UPMIFA. A board-designated (quasi) endowment stays in net assets without donor restrictions the whole time, because the board can undo its own designation.
For the basics of ordinary restrictions and releases, see our guide to restricted funds accounting.
The rule and the journal entries
Under ASU 2016-14, the original gift, later gifts and investment return of a donor-restricted endowment are initially classified as net assets with donor restrictions in states that have enacted UPMIFA, and they remain there until the board appropriates them for spending (FORVIS, no date shown). Once appropriated and spent for its purpose, the amount is reported as a release from restriction. A typical spending formula is:
Annual appropriation = spending rate × average fair value of the fund over a trailing period (often three or five years)
| Account | Debit | Credit | Note |
|---|---|---|---|
| Cash or investments | Gift amount | Entry 1: new endowment gift. | |
| Contributions, with donor restrictions | Gift amount | Code to the fund and to “perpetual corpus.” Never released. | |
| Investments | Net return | Entry 2: interest, dividends and gains, net of investment fees. | |
| Net investment return, with donor restrictions | Share of donor funds | Includes return on underwater funds. | |
| Net investment return, without donor restrictions | Share of board-designated funds | Quasi-endowment return. | |
| Cash (operating) | Total appropriation | Entry 3: draw from the investment pool. | |
| Investments | Total appropriation | Cash movement only. | |
| Net assets released from restrictions, with donor restrictions | Donor-fund appropriation spent | Entry 4: release once appropriated and the purpose is met. | |
| Net assets released from restrictions, without donor restrictions | Donor-fund appropriation spent | Nets to zero in total. The expense itself is unrestricted. |
The quasi-endowment draw needs no release entry, because it stays in the same net asset class.
Worked example: one year at a private school
Illustration only. All figures below are constructed for this example. A private school holds three funds in one investment pool at the start of its fiscal year, with a total fair value of $2,000,000. Its spending policy is 4.5% of each fund’s average fair value over the trailing 12 quarters, and its written underwater policy cuts the rate to 3% for any fund below its original gift value.
| Fund | Type | Original gift | Opening fair value |
|---|---|---|---|
| A. Scholarship endowment | Donor-restricted, perpetual | $1,000,000 | $1,200,000 |
| B. Library endowment | Donor-restricted, perpetual | $320,000 | $300,000 (underwater by $20,000) |
| C. Facilities reserve | Board-designated (quasi) | Not applicable | $500,000 |
Step 1. Calculate the appropriation. Fund A’s 12-quarter average is $1,150,000, so its draw is 4.5% × $1,150,000 = $51,750. Fund B’s average is $310,000 and it is underwater, so its draw is 3% × $310,000 = $9,300. Fund C’s average is $480,000, so its draw is 4.5% × $480,000 = $21,600. The board approves $82,650 in total, and the minutes record that it considered the UPMIFA prudence factors.
Step 2. Record the year’s investment return. The pool earns $40,000 of interest and dividends and $130,000 of realized and unrealized gains, and pays $10,000 of investment management fees. Net return is $160,000, or 8% of the opening balance, which the school allocates by opening fair value: A $96,000, B $24,000, C $40,000. Debit investments $160,000, credit net investment return with donor restrictions $120,000 and credit net investment return without donor restrictions $40,000. All of Fund B’s $24,000 goes to the restricted class, including the $20,000 that restores its deficiency.
Step 3. Draw the cash and release the restricted portion. Debit operating cash $82,650 and credit investments $82,650. As scholarships and library purchases are paid, record the expenses as unrestricted and release the $61,050 drawn from Funds A and B: debit net assets released from restrictions (with donor restrictions) $61,050 and credit the same line without donor restrictions $61,050. Record Fund C’s $21,600 as a transfer from board-designated to undesignated net assets.
Step 4. Record a new endowment gift. At year-end a donor gives $250,000 to create a perpetual faculty endowment (Fund D). Debit investments $250,000 and credit contributions with donor restrictions $250,000, coded to perpetual corpus. A multi-year pledge would instead be recorded at present value, as our guide to pledge management software explains.
Step 5. Build the endowment roll-forward that your auditor and Form 990 both require.
| Line | With donor restrictions | Without donor restrictions (board-designated) | Total |
|---|---|---|---|
| Opening balance | $1,500,000 | $500,000 | $2,000,000 |
| Contributions | $250,000 | $0 | $250,000 |
| Net investment return | $120,000 | $40,000 | $160,000 |
| Appropriated for expenditure | ($61,050) | ($21,600) | ($82,650) |
| Closing balance | $1,808,950 | $518,400 | $2,327,350 |
Fund B closes at $314,700 ($300,000 + $24,000 − $9,300), so it is still underwater by $5,300 even after a good year. The school discloses an aggregate underwater fair value of $314,700, original gift amounts of $320,000 and a deficiency of $5,300. Within Fund A, track the $1,000,000 corpus apart from the $244,250 of accumulated return, because only the return can be released.
The standards and laws behind it
UPMIFA. The Uniform Law Commission approved the Uniform Prudent Management of Institutional Funds Act in 2006, and 49 of the 50 states have enacted a version of it (FORVIS). It replaced the old historic dollar value floor with a prudence standard (Texas House bill analysis, C.S.H.B. 860, 2007). In New Hampshire’s enactment, an institution may appropriate “so much of an endowment fund as the institution determines is prudent,” after weighing seven factors, including preservation of the fund, economic conditions, inflation, expected total return and the investment policy (NH RSA 292-B:4, checked October 8, 2026).
The optional 7% presumption. Some states adopted an optional clause. In New Hampshire, appropriating more than 7% of a fund’s fair market value in a year “creates a rebuttable presumption of imprudence,” with fair value measured at least quarterly and averaged over at least the three preceding years (NH RSA 292-B:4). Check your own state’s statute, because not every state included it.
Pennsylvania. Nonprofits electing Pennsylvania’s total return statute may spend 2% to 7% of the three-year average value (Ballard Spahr, July 28, 2020).
Changing a restriction. UPMIFA lets you release or modify a restriction with the donor’s written consent or a court order. New Hampshire also allows a small, old fund to be modified without court approval if it is worth less than $25,000 and more than 25 years old, effective 60 days after notice to the attorney general (NH RSA 292-B:6, checked October 8, 2026). Thresholds differ by state.
ASC 958 and ASU 2016-14. ASU 2016-14, effective for fiscal years beginning after December 15, 2017, moved underwater deficiencies into net assets with donor restrictions and requires you to disclose your policy for appropriating from underwater funds, any actions taken under it during the period, the aggregate fair value, the original gift amounts and the aggregate deficiency. It also removed the requirement to disclose investment expenses netted against return (Deloitte, September 12, 2016). Before the update, underwater losses sat in unrestricted net assets (PYA, July 30, 2019). Under ASC 958-205-50-1C, if the board interprets the law as requiring purchasing power to be preserved, the amount to maintain is adjusted periodically with an index such as CPI or HEPI (FORVIS).
How peers set spending. The 2025 NACUBO-Commonfund Study of Endowments, covering 657 institutions, reported an average effective spending rate of 4.9% for fiscal 2025, up from 4.8% in fiscal 2024 (NACUBO, no date shown, survey closed December 12, 2025). The same study reported an average net return of 10.9% for fiscal 2025 (CIO, February 12, 2026).
Common mistakes
- Booking returns on donor funds as unrestricted. They stay restricted until appropriated.
- Releasing the whole appropriation on the vote date. Budgeted appropriations are typically released over the budget period as the purpose is met (FORVIS).
- Treating a quasi-endowment as restricted. Board-designated funds belong in net assets without donor restrictions and are not subject to the underwater disclosures (FORVIS).
- Losing the original gift value. Without corpus tracked by fund, you cannot identify underwater funds.
- No underwater spending policy. You must disclose it, and regulators expect deficiencies to be tracked even where spending is allowed (FORVIS).
How to report endowments
On the statement of activities, report one net investment return line in each net asset class, with appropriations from donor funds shown as releases from restriction. In the notes, ASC 958-205-50-1B requires the composition of endowment net assets by class and by type of fund, with donor-restricted funds shown separately from board-designated funds, plus your interpretation of the governing law, your spending and investment policies and a roll-forward of balances (FORVIS).
On Form 990, organizations that answer yes to Part IV, line 10 complete Schedule D, Part V. Lines 1a to 1g roll the endowment forward through contributions, net investment earnings, grants or scholarships, program and facility spending and administrative expenses, and line 2 splits the year-end balance into board-designated, permanent and term endowment percentages that should match your ASC 958-205 note (IRS, Instructions for Schedule D, revised December 2024). In the example above, line 2 would show about 22.3% board-designated and 77.7% permanent endowment.
How ERP and accounting systems automate it
General ledgers handle the net asset entries but rarely calculate units, pool allocations and spending draws for many funds, so institutions add an endowment module or a subledger that posts summary entries. Our nonprofit accounting software guide compares the general ledgers.
Blackbaud Financial Edge NXT. Blackbaud markets endowment management on Financial Edge NXT with spendable balance reports, spending controls, tracking of “original gift amounts separately from investment earnings,” UPMIFA monitoring of underwater funds and automated journal entry creation. Pricing is not published (Blackbaud, modified November 3, 2025).
Balance by EverTrue (formerly Fundriver). Balance is a dedicated endowment subledger that calculates units, applies market-value, hybrid, inflation-based or custom spending formulas, and exports entries to Workday, NetSuite, Blackbaud Financial Edge, Ellucian Banner and Colleague, Jenzabar and others. Its product page does not mention underwater reporting or list prices (EverTrue, modified June 8, 2026).
Workday. Workday’s endowment accounting datasheet describes a unitized investment pool, an automatic rate calculator that sets the payout for each pool and reports on underwater gifts. It suits institutions already on Workday Financials (Workday, copyright 2024).
Sage Intacct. Sage Intacct’s Nonprofit QuickStart supports net asset or traditional fund accounting (Sage Intacct Help, modified October 1, 2026), but we found no dedicated endowment module in its documentation. Smaller organizations track each fund and its corpus with dimensions and post allocations by journal entry or import. Our Sage Intacct vs NetSuite comparison covers the wider fit.
How we researched this
We read the enacted UPMIFA text in New Hampshire’s statutes, the IRS Schedule D instructions and ASU 2016-14 summaries from Deloitte, FORVIS and PYA, because the FASB Codification itself requires a login. We took spending data from NACUBO’s 2025 study summary and checked vendor pages for Blackbaud, EverTrue, Workday and Sage Intacct on October 8, 2026.
Related guides
- Nonprofit Statement of Financial Position: Template
- Form 990 Schedule D: Triggers, Endowments, Reconciliations
- Planned Giving Software for Nonprofits: 2026 Buyer's Guide
Frequently asked questions
What is the difference between a donor-restricted and a board-designated endowment?
A donor-restricted endowment exists because the gift agreement requires the money to be invested, and it sits in net assets with donor restrictions. A board-designated (quasi) endowment is unrestricted money the board chose to invest, so it stays in net assets without donor restrictions.
Can you spend from an underwater endowment?
Under UPMIFA, generally yes, if the board decides the spending is prudent after weighing the statutory factors. You must disclose your policy on appropriating from underwater funds and the amounts involved. Your written policy can also reduce or suspend spending from underwater funds, as the school in our example does.
What is a typical endowment spending rate?
Institutions in the 2025 NACUBO-Commonfund study reported an average effective spending rate of 4.9% for fiscal 2025. Policies often apply the rate to a trailing average of three or five years of market value to smooth market swings (James Moore & Co., July 22, 2026). In states with the optional 7% clause, spending above 7% is rebuttably presumed imprudent.
Is endowment corpus ever released?
Not for a perpetual endowment, whose original gift stays in net assets with donor restrictions indefinitely. Only the accumulated return is appropriated and released. A term endowment’s principal becomes available when the term ends.
Sources
- FORVIS, Endowment accounting reminders, no date shown, checked October 8, 2026. forvismazars.us
- Deloitte, Heads Up on ASU 2016-14, September 12, 2016. dart.deloitte.com
- PYA, Key takeaways of underwater endowment accounting and disclosures, July 30, 2019. pyapc.com
- New Hampshire RSA 292-B:4, Appropriation for expenditure, checked October 8, 2026. gc.nh.gov
- New Hampshire RSA 292-B:6, Release or modification of restrictions, checked October 8, 2026. gc.nh.gov
- Texas House of Representatives, bill analysis of C.S.H.B. 860 (UPMIFA), 80th Legislature, 2007, checked October 8, 2026. capitol.texas.gov
- Ballard Spahr, Pennsylvania provides new spending flexibilities, July 28, 2020. ballardspahr.com
- IRS, Instructions for Schedule D (Form 990), revised December 2024. irs.gov
- NACUBO, Summary and key insights from the 2025 NACUBO-Commonfund Study of Endowments, no date shown. nacubo.org
- CIO, University endowments report average 10.9% return, February 12, 2026. ai-cio.com
- James Moore & Co., Endowment accounting for nonprofits, July 22, 2026 (CPA firm). jmco.com
- Blackbaud, Endowment accounting software, modified November 3, 2025 (vendor). blackbaud.com
- EverTrue, Balance endowment accounting software, modified June 8, 2026 (vendor). evertrue.com
- Workday, Endowment accounting datasheet, copyright 2024 (vendor). workday.com
- Sage Intacct Help, Traditional fund accounting, modified October 1, 2026 (vendor). intacct.com
Sherman Hsieh
Independent analysis of enterprise software — ERP, CRM and more
