CCAP Nonprofit Financial Management 2 — Questions and Answers
Question 1: Which financial statement shows a nonprofit's assets, liabilities, and net assets at a specific point in time?
- Statement of Activities
- Statement of Financial Position (Correct answer)
- Statement of Cash Flows
- Statement of Functional Expenses
Correct answer: Statement of Financial Position
The Statement of Financial Position (equivalent to a balance sheet) reports assets, liabilities, and net assets at a specific date.
Question 2: Under FASB ASC 958, net assets without donor restrictions are best described as:
- Funds restricted by the IRS for charitable purposes
- Resources the board can use for any mission-related purpose (Correct answer)
- Grants restricted to specific program activities
- Endowment funds held in perpetuity
Correct answer: Resources the board can use for any mission-related purpose
Net assets without donor restrictions are resources not subject to donor-imposed stipulations and available for board-directed purposes.
Question 3: A community action agency receives a $50,000 grant that must be spent on housing services by December 31. This is classified as:
- Net assets without donor restrictions
- Permanently restricted net assets
- Net assets with donor restrictions (Correct answer)
- Unrestricted operating reserves
Correct answer: Net assets with donor restrictions
Funds with time or purpose restrictions imposed by donors are classified as net assets with donor restrictions under FASB ASC 958.
Question 4: Which ratio measures how many months an organization could operate using only its liquid unrestricted net assets?
- Current ratio
- Months of liquid unrestricted net assets (LUNA) (Correct answer)
- Debt-to-equity ratio
- Program expense ratio
Correct answer: Months of liquid unrestricted net assets (LUNA)
LUNA measures organizational liquidity by dividing liquid unrestricted net assets by average monthly expenses.
Question 5: The primary purpose of an operating reserve policy is to:
- Maximize investment returns on idle cash
- Ensure adequate funds to sustain operations during revenue shortfalls (Correct answer)
- Separate restricted and unrestricted funds
- Satisfy IRS reporting requirements
Correct answer: Ensure adequate funds to sustain operations during revenue shortfalls
An operating reserve policy ensures the organization has a financial cushion to maintain operations during unexpected revenue gaps.
Question 6: Which expense allocation method is most appropriate for a program manager who splits time across three CSBG-funded programs?
- Direct charge to the largest program
- Time and effort reporting to document actual time spent (Correct answer)
- Allocating equally across all programs regardless of effort
- Charging all time to indirect costs
Correct answer: Time and effort reporting to document actual time spent
Time and effort reporting documents actual hours worked per program and is the federally required method for allocating personnel costs under federal grants.
Question 7: Under OMB Uniform Guidance, what is the threshold that triggers a Single Audit requirement for a nonprofit?
- $500,000 in federal expenditures
- $750,000 in federal expenditures (Correct answer)
- $1,000,000 in total revenues
- $250,000 in federal grants received
Correct answer: $750,000 in federal expenditures
Nonprofits that expend $750,000 or more in federal awards in a fiscal year are subject to the Single Audit requirement under 2 CFR Part 200.
CCAP Nonprofit Financial Management 2
Which financial statement shows a nonprofit's assets, liabilities, and net assets at a specific point in time?