Nonprofit Nonprofit Financial Management 2

Question 1

What is an endowment fund in a nonprofit context?

Accepted Answer

A fund where the principal is invested and only income is spent according to donor intent

Answer

A fund held in reserve for emergency operating expenses

Answer

A pool of restricted grants from government agencies

Answer

A fund used exclusively for capital campaigns

Question 2

What does the program expense ratio measure?

Accepted Answer

The percentage of total expenses spent on program activities versus overhead

Answer

The ratio of government grants to private donations

Answer

The number of programs offered per staff member

Answer

The ratio of paid staff to volunteers

Question 3

What is an independent audit in nonprofit financial management?

Accepted Answer

An external review of financial statements by a certified public accountant to verify accuracy

Answer

An internal review conducted by the finance committee

Answer

An IRS examination triggered by Form 990 discrepancies

Answer

A state inspection of grant management practices

Question 4

What is accrual accounting and why is it preferred for nonprofits under GAAP?

Accepted Answer

Recording revenues when earned and expenses when incurred, providing a more accurate financial picture

Answer

Recording only cash transactions to simplify bookkeeping

Answer

Tracking grant expenditures on a quarterly basis

Answer

Reporting income and expenses on a calendar year basis only

Question 5

What is a budget variance report?

Accepted Answer

A comparison of actual financial results against the approved budget

Answer

A forecast of future revenue based on historical trends

Answer

A report showing differences between two fiscal years

Answer

A donor-specific expense allocation report

Question 6

What is the significance of net assets in a nonprofit's financial statements?

Accepted Answer

Net assets represent the residual interest in the organization's assets after deducting liabilities

Answer

Net assets are the total revenue earned in a fiscal year

Answer

Net assets are cash held in operating accounts only

Answer

Net assets represent the total value of donated goods