Financial Sustainability & Cash Flow Management Flashcards

Which of the following best characterizes a 'quasi-endowment' (board-designated endowment)?

Answer: It is set aside by board resolution and can be undesignated by a board vote

A quasi-endowment is created by board decision rather than donor restriction, so the board retains authority to undesignate and spend the funds if organizational needs require it.

In nonprofit financial management, 'working capital' is best defined as:

Answer: Current assets minus current liabilities

Working capital (current assets minus current liabilities) measures liquid resources available for day-to-day operations and is a standard indicator of short-term financial health.

A nonprofit that receives a $500,000 government cost-reimbursement grant should recognize revenue:

Answer: As qualifying expenses are incurred

Under ASC 958, cost-reimbursement grants are recognized as revenue when the qualifying expenditures are incurred, aligning revenue recognition with the fulfillment of grant conditions.

Which financial sustainability strategy involves nonprofits generating revenue by selling goods or services related to their mission?

Answer: Social enterprise and earned income

Social enterprise and earned income strategies involve nonprofits operating market-based activities to generate revenue, reducing dependence on philanthropic support.

What is 'fiscal sponsorship' in the nonprofit sector?

Answer: An arrangement where an established 501(c)(3) extends its tax-exempt status to a sponsored project

Fiscal sponsorship is a formal arrangement in which an established 501(c)(3) organization sponsors a project under its tax-exempt umbrella, enabling the project to receive tax-deductible contributions.

When beginning a financial assessment for a nonprofit client, a consultant should review which of the following FIRST?

Answer: The most recent independent audit or financial review

The most recent independent audit or financial review provides the most objective, third-party verified picture of organizational financial health and is the essential starting point for any financial assessment.

A nonprofit's 'overhead ratio' (management and fundraising expenses as a percentage of total expenses) is best understood as:

Answer: One metric that must be interpreted in the context of mission and organizational stage

Sector experts widely agree that overhead ratios are incomplete and potentially misleading in isolation; organizational effectiveness should be assessed by outcomes achieved relative to total investment.