Accounting 101 Flashcards
(184 cards)
1
Q
What does GAAP stand for?
A
Generally Accepted Accounting Principles
2
Q
True or False: GAAP is mandatory for all non-profit organizations in the United States.
A
False
3
Q
Fill in the blank: Non-profit organizations must prepare financial statements in accordance with _____.
A
GAAP
4
Q
What is the primary purpose of GAAP in non-profit accounting?
A
To ensure transparency and consistency in financial reporting.
5
Q
Which financial statement shows the revenues and expenses of a non-profit organization?
A
Statement of Activities
6
Q
Multiple Choice: Which of the following is NOT a required financial statement for non-profits under GAAP? A) Statement of Financial Position B) Statement of Activities C) Statement of Cash Flows D) Statement of Equity
A
D) Statement of Equity
7
Q
What is the purpose of the Statement of Financial Position?
A
To provide a snapshot of the organization’s assets, liabilities, and net assets at a specific point in time.
8
Q
True or False: Non-profits can use fund accounting to track resources by specific purposes.
A
True
9
Q
What is a key difference between for-profit and non-profit accounting?
A
Non-profits focus on accountability to donors and stakeholders rather than profit generation.
10
Q
Fill in the blank: Contributions received by non-profits are recorded as _____.
A
Revenue
11
Q
What is the term for resources that have restrictions on their use?
A
Temporarily Restricted Net Assets
12
Q
Multiple Choice: Which accounting method is commonly used by non-profits? A) Cash Basis B) Accrual Basis C) Modified Cash Basis D) None of the above
A
B) Accrual Basis
13
Q
True or False: Non-profits are required to report functional expenses.
A
True
14
Q
What are functional expenses?
A
Expenses that are categorized by their purpose, such as program services, management, and fundraising.
15
Q
Fill in the blank: Net assets of a non-profit are classified into three categories: unrestricted, temporarily restricted, and _____.
A
permanently restricted
16
Q
What does FASB stand for?
A
Financial Accounting Standards Board
17
Q
True or False: The FASB establishes GAAP for non-profit organizations.
A
True
18
Q
What is the significance of the Form 990?
A
It provides the IRS and the public with information about a non-profit’s financial activities.
19
Q
Multiple Choice: Which of the following is a common source of revenue for non-profits? A) Donations B) Sales of Goods C) Grants D) All of the above
A
D) All of the above
20
Q
What is an endowment fund?
A
A fund where the principal is kept intact while the income generated is used for specific purposes.
21
Q
True or False: Non-profits can have surpluses and deficits just like for-profit organizations.
A
True
22
Q
Fill in the blank: The _____ is used to report cash inflows and outflows for a non-profit organization.
A
Statement of Cash Flows
23
Q
What is the role of an audit for non-profits?
A
To provide an independent evaluation of financial statements and ensure compliance with GAAP.
24
Q
Multiple Choice: Which of the following is a measure of a non-profit’s financial health? A) Liquidity Ratios B) Profit Margins C) Return on Investment D) All of the above
A
A) Liquidity Ratios
25
What is the purpose of donor restrictions?
To ensure that donations are used for specific purposes as intended by the donor.
26
True or False: Non-profits must disclose their accounting policies in their financial statements.
True
27
What is the primary principle of accrual accounting?
Revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.
28
True or False: In accrual accounting, cash flow is the primary basis for recording transactions.
False
29
Fill in the blank: Accrual accounting is based on the _____ principle.
matching
30
Which accounting method allows for recognizing revenue before cash is received?
Accrual accounting
31
What is one advantage of using accrual accounting over cash accounting?
It provides a more accurate picture of a company's financial position and performance.
32
What is the primary purpose of nonprofit accounting?
To track and report the financial activities of a nonprofit organization.
33
True or False: Nonprofit organizations can distribute profits to owners or shareholders.
False
34
What is the main financial statement used by nonprofits?
Statement of Activities
35
Fill in the blank: Nonprofits must adhere to _____ accounting standards.
Generally Accepted Accounting Principles (GAAP)
36
What is the term for funds that are restricted for specific purposes in nonprofit accounting?
Temporarily Restricted Net Assets
37
Which statement reflects a nonprofit's revenues and expenses over a period of time?
Statement of Activities
38
What is the purpose of a Statement of Financial Position?
To provide a snapshot of the organization's assets, liabilities, and net assets at a specific point in time.
39
True or False: Nonprofits are required to file Form 990 with the IRS.
True
40
What does the term 'unrestricted net assets' refer to?
Net assets that can be used for any purpose the organization deems appropriate.
41
What is a common source of funding for nonprofits?
Donations and grants
42
Fill in the blank: Nonprofit organizations often rely on _____ to support their missions.
Volunteers
43
What is the difference between cash basis and accrual basis accounting?
Cash basis recognizes income and expenses when cash is exchanged, while accrual basis recognizes them when they are earned or incurred.
44
What is a budget in the context of nonprofit accounting?
A financial plan that estimates revenues and expenditures for a specific period.
45
True or False: Nonprofits do not need to conduct audits.
False
46
What is the purpose of fund accounting?
To ensure that resources are used according to the restrictions placed by donors.
47
What does the term 'in-kind contributions' refer to?
Non-cash donations of goods or services.
48
Which accounting principle requires nonprofits to recognize revenue when it is earned?
Accrual Accounting Principle
49
What is a 'donor restricted grant'?
A grant provided to a nonprofit with specific conditions on how it can be used.
50
Fill in the blank: Nonprofits must maintain _____ records for transparency and accountability.
Accurate financial
51
What financial statement shows the changes in net assets over a period?
Statement of Activities
52
True or False: Nonprofits can have a profit as long as it is reinvested into the organization.
True
53
What does 'net assets' refer to in nonprofit accounting?
The difference between total assets and total liabilities.
54
What is the role of the board of directors in nonprofit accounting?
To oversee financial management and ensure compliance with laws and regulations.
55
Fill in the blank: The _____ is a key document for maintaining donor trust and transparency.
Annual report
56
What is the purpose of a financial audit for nonprofits?
To provide an independent assessment of the organization's financial statements.
57
What is the significance of a 'charitable solicitation license'?
It allows a nonprofit to legally solicit donations in a specific state or jurisdiction.
58
What is the primary federal tax form that non-profit organizations must file annually?
Form 990
59
True or False: Non-profit organizations are exempt from federal income tax.
True
60
Fill in the blank: Non-profit organizations must adhere to _____ regulations to maintain their tax-exempt status.
IRS
61
Which section of the Internal Revenue Code provides tax-exempt status for charitable organizations?
Section 501(c)(3)
62
What is the purpose of Form 990?
To provide the IRS and the public with information about the organization's mission, programs, and finances.
63
Multiple Choice: What is the deadline for filing Form 990 for most non-profits?
May 15
64
True or False: All non-profit organizations are required to file Form 990.
False
65
What is the state-level requirement commonly associated with non-profit organizations?
Charitable solicitation registration
66
What is the consequence of failing to file Form 990 for three consecutive years?
Automatic revocation of tax-exempt status
67
Fill in the blank: Non-profits must ensure compliance with _____ laws in addition to federal requirements.
state
68
What is a pension plan?
A pension plan is a retirement plan that provides monthly income to employees after they retire.
69
True or False: Postretirement benefits include only pension payments.
False
70
Fill in the blank: The accounting for pensions and postretirement benefits is guided by __________.
GAAP (Generally Accepted Accounting Principles)
71
What is the difference between defined benefit and defined contribution plans?
Defined benefit plans promise a specified monthly benefit at retirement, while defined contribution plans depend on contributions and investment returns.
72
What does the term 'funded status' refer to in pension accounting?
Funded status refers to the difference between the fair value of plan assets and the projected benefit obligations.
73
Multiple Choice: Which of the following is a key component of pension expense under GAAP? A) Service cost B) Income tax C) Interest expense D) Depreciation
A) Service cost
74
What is the role of the actuary in pension accounting?
An actuary estimates future benefit payments and helps calculate the present value of those obligations.
75
True or False: Employers are required to fully fund their pension plans.
False
76
What is the purpose of the discount rate in pension accounting?
The discount rate is used to calculate the present value of future benefit obligations.
77
Fill in the blank: The __________ method is commonly used for recognizing pension expense over time.
projected unit credit method
78
What are Other Postretirement Benefits (OPEB)?
OPEB refers to benefits other than pensions that an employer provides to employees after retirement, such as health care.
79
Multiple Choice: Which of the following is NOT part of the pension expense calculation? A) Service cost B) Interest cost C) Return on plan assets D) Payroll taxes
D) Payroll taxes
80
What is the significance of the corridor approach in pension accounting?
The corridor approach limits the amount of unrecognized gains and losses that can affect pension expense.
81
True or False: Pension plans can be either funded or unfunded.
True
82
What is the term for the obligation to pay future pensions to employees?
Projected Benefit Obligation (PBO)
83
What is the primary accounting standard governing leases?
The primary accounting standard governing leases is IFRS 16.
84
True or False: Under IFRS 16, lessees must recognize a right-of-use asset and a lease liability on their balance sheet.
True
85
Fill in the blank: The lease liability is measured at the present value of ________ payments.
future lease
86
What is the difference between an operating lease and a finance lease?
An operating lease does not transfer ownership of the asset, while a finance lease does.
87
Multiple Choice: Which of the following is NOT a criterion for classifying a lease as a finance lease? A) Transfer of ownership B) Lease term covers a major part of the asset's economic life C) The asset is of low value D) The present value of lease payments equals substantially all of the fair value of the asset.
C) The asset is of low value
88
What type of lease results in the lessee recognizing depreciation on the leased asset?
Finance lease
89
True or False: Under IFRS 16, lessors have the same recognition and measurement requirements as lessees.
False
90
What is the impact of lease incentives on the measurement of lease liabilities?
Lease incentives reduce the total lease payments considered in the measurement of lease liabilities.
91
Short Answer: How often must a lessee reassess lease liabilities?
A lessee must reassess lease liabilities when there is a change in lease terms or conditions.
92
Fill in the blank: The right-of-use asset is initially measured at cost, which includes the lease liability, any initial direct costs, and ________.
any lease payments made before the commencement date
93
What are long-term liabilities in the context of non-profit accounting?
Long-term liabilities are obligations that a non-profit organization is required to pay after one year.
94
True or False: Long-term liabilities include accounts payable.
False
95
Fill in the blank: The primary financial statement that reports long-term liabilities is the ______.
Balance Sheet
96
Which of the following is an example of a long-term liability? A) Accounts Payable B) Bonds Payable C) Accrued Expenses
B) Bonds Payable
97
What must non-profits do to recognize long-term liabilities?
Non-profits must record the liability at its present value and disclose terms and conditions in the notes to the financial statements.
98
What are long-lived assets?
Assets that are expected to provide economic benefits for more than one year.
99
True or False: Depreciation applies to tangible assets only.
True.
100
Fill in the blank: Depreciation is the allocation of the cost of a long-lived asset over its _____.
useful life.
101
What method of depreciation spreads the cost evenly over the asset's useful life?
Straight-line depreciation.
102
Which method of depreciation accelerates the expense recognition in the early years of an asset's life?
Declining balance method.
103
What is impairment in the context of long-lived assets?
A permanent reduction in the value of an asset.
104
When should an organization test for impairment?
Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
105
True or False: Non-profit organizations are exempt from accounting for depreciation.
False.
106
What is the primary purpose of depreciation?
To match the expense of an asset with the revenue it generates over time.
107
Fill in the blank: The _____ of an asset is the amount for which it was purchased minus any accumulated depreciation.
book value.
108
What is the formula for calculating straight-line depreciation?
Cost of the asset minus salvage value divided by useful life.
109
True or False: Non-profits must adhere to the same depreciation rules as for-profit entities.
True.
110
What is a salvage value?
The estimated residual value of an asset at the end of its useful life.
111
Which accounting standard typically governs non-profit accounting for long-lived assets?
Generally Accepted Accounting Principles (GAAP).
112
True or False: Non-profits can use the revaluation model for long-lived assets.
False, they typically use the cost model.
113
What type of assets are considered long-lived?
Property, plant, and equipment.
114
Fill in the blank: An asset is considered impaired if its _____ exceeds its fair value.
carrying amount.
115
What is the journal entry to record depreciation expense?
Debit Depreciation Expense, Credit Accumulated Depreciation.
116
True or False: Non-profits can choose not to record depreciation on donated assets.
False, they must still record depreciation.
117
What is the impact of impairment on the financial statements?
It reduces the carrying amount of the asset and increases expenses.
118
What is a capital asset?
A long-term asset used in the operations of an organization.
119
Fill in the blank: The _____ method of depreciation is often used for assets that have a variable usage pattern.
units of production.
120
What is the typical useful life range for buildings in non-profit accounting?
10 to 40 years.
121
True or False: Non-profits are required to disclose their policies on depreciation in their financial statements.
True.
122
What is the difference between tangible and intangible assets?
Tangible assets have physical substance, while intangible assets do not.
123
What is goodwill in the context of long-lived assets?
An intangible asset that arises when a company acquires another for more than the fair value of its net identifiable assets.
124
What are intangible assets?
Intangible assets are non-physical assets that have value, such as intellectual property, trademarks, and goodwill.
125
True or False: Intangible assets can be physically touched.
False
126
Fill in the blank: In nonprofit accounting, intangible assets are typically recorded at __________.
cost or fair value at acquisition
127
Which of the following is NOT considered an intangible asset? A) Patent B) Trademark C) Inventory
C) Inventory
128
What is goodwill?
Goodwill is an intangible asset that arises when a nonprofit acquires another organization for more than the fair value of its identifiable net assets.
129
True or False: Nonprofits must amortize intangible assets over their useful lives.
True
130
What accounting standard governs the recognition of intangible assets in nonprofit organizations?
FASB Accounting Standards Codification (ASC) 350
131
Multiple Choice: Which of the following is an example of an intangible asset? A) Building B) Trademark C) Equipment
B) Trademark
132
What is the typical useful life for intangible assets in nonprofit accounting?
The useful life can vary but is often considered to be between 3 to 15 years.
133
True or False: Intangible assets can be revalued to reflect current market conditions.
False, they are usually recorded at historical cost.
134
What is the primary purpose of nonprofit accounting?
To provide accurate financial information that supports transparency and accountability.
135
True or False: Nonprofit organizations aim to generate profit for owners.
False
136
What are the main financial statements used in nonprofit accounting?
Statement of Financial Position, Statement of Activities, and Statement of Cash Flows.
137
Fill in the blank: Nonprofits are required to report their financial information according to __________ standards.
Generally Accepted Accounting Principles (GAAP)
138
What is a joint cost in the context of nonprofit fundraising?
Costs that are incurred for two or more purposes, such as fundraising and program services.
139
Which method is often used to allocate joint costs?
The relative fair value method.
140
True or False: All joint costs can be allocated to fundraising activities.
False
141
What is the difference between restricted and unrestricted funds?
Restricted funds are designated for specific purposes, while unrestricted funds can be used at the organization's discretion.
142
What is an important aspect of donor restrictions?
Donors may place conditions on the use of their contributions.
143
What is the purpose of a budget in nonprofit organizations?
To plan and control financial resources.
144
What are contributions in nonprofit accounting?
Donations made to the organization without expectation of return.
145
Which accounting approach is typically used for nonprofit organizations?
Accrual accounting.
146
True or False: Nonprofits do not need to follow tax regulations.
False
147
What is a donor acknowledgment letter?
A letter sent to donors confirming their contributions for tax purposes.
148
What is the significance of Form 990 for nonprofits?
It is a tax form that provides the IRS and the public with financial information about the nonprofit.
149
What is an endowment fund?
A fund that is invested to generate income for the nonprofit over time.
150
Fill in the blank: Nonprofits must report their financial activities to __________.
stakeholders, including donors and regulatory bodies.
151
What does the term 'fund accounting' refer to?
A system of accounting that emphasizes accountability over profitability.
152
True or False: Nonprofits can operate without a formal accounting system.
False
153
What is a fiscal sponsor?
An organization that provides financial and administrative services to another nonprofit.
154
What is the role of an audit in nonprofit accounting?
To evaluate the accuracy and fairness of the financial statements.
155
What are in-kind donations?
Non-cash contributions of goods or services.
156
What does 'overhead' refer to in nonprofit organizations?
The ongoing administrative expenses of running the organization.
157
Fill in the blank: __________ is the process of securing financial support for nonprofit activities.
Fundraising
158
What is the purpose of a donor database?
To track donor information and contributions.
159
True or False: Nonprofits can be audited by the IRS.
True
160
What are current assets in nonprofit accounting?
Current assets are resources that a nonprofit expects to convert into cash or use within one year.
161
True or False: Current liabilities are obligations that a nonprofit expects to settle within one year.
True
162
Fill in the blank: Examples of current assets include cash, accounts receivable, and ________.
inventory
163
Which of the following is NOT a current liability? A) Accounts payable B) Long-term debt C) Accrued expenses
B) Long-term debt
164
What is the primary purpose of tracking current assets and liabilities in nonprofit accounting?
To assess the organization's liquidity and financial health.
165
True or False: Nonprofits do not need to report current liabilities on their balance sheet.
False
166
What is the formula for calculating working capital in nonprofit accounting?
Working capital = Current assets - Current liabilities
167
List two examples of current liabilities in nonprofit accounting.
Accounts payable and accrued expenses.
168
What role do current assets play in a nonprofit's day-to-day operations?
They provide the necessary funds to cover immediate expenses and obligations.
169
Multiple choice: Which of the following is considered a current asset? A) Property B) Investments C) Grants receivable
C) Grants receivable
170
What is a nonprofit investment account?
A nonprofit investment account is a financial account used by nonprofit organizations to manage and grow their funds through various investment vehicles.
171
True or False: Nonprofits can invest in stocks and bonds.
True
172
Fill in the blank: Nonprofit organizations often seek to maximize their ______ while adhering to their mission.
returns
173
What is the primary purpose of a nonprofit investment account?
The primary purpose is to generate income to support the organization's programs and activities.
174
Which of the following is NOT a common investment option for nonprofits? (A) Stocks (B) Real Estate (C) Personal Loans
C) Personal Loans
175
What is a socially responsible investment (SRI)?
A socially responsible investment is an investment strategy that considers both financial return and social/environmental good.
176
True or False: Nonprofits are prohibited from investing in high-risk securities.
False
177
What is the role of an investment policy statement (IPS) in nonprofit investing?
An IPS outlines the guidelines and strategies for managing the nonprofit's investment portfolio.
178
Multiple Choice: What is a common risk associated with nonprofit investments? (A) Market Risk (B) Climate Risk (C) Liquidity Risk
A) Market Risk
179
What financial instrument is often used to raise funds for nonprofits while providing tax benefits to donors?
Charitable remainder trusts
180
Fill in the blank: Nonprofits must comply with ______ regulations when managing their investment accounts.
fiduciary
181
What is the significance of diversification in a nonprofit investment portfolio?
Diversification reduces risk by spreading investments across various asset classes.
182
True or False: Nonprofits can only invest in low-risk assets.
False
183
What is the difference between endowment funds and operating reserves in nonprofits?
Endowment funds are invested to provide long-term support, while operating reserves are used for short-term financial stability.
184
What should nonprofits consider when selecting investment advisors?
Nonprofits should consider the advisor's experience, fees, and understanding of nonprofit financial needs.
