Weeks 1-3

Question 1

Nonprofit Legal Entity Type

Answer 1

Corporation

Question 2

Nonprofit Tax-Exempt Organization Classification

Answer 2

501(c)s

Question 3

Nonprofit Types (3)

Answer 3

1. Private foundations 501(c)3
2. Public charities 501(c)3
3. 501(c)1s through 501(c)27s

Question 4

Private Foundations

Answer 4

501(c)3 organization. Individual/family/corporation endowed as a nonprofit to provide support to public charities.

Question 5

501(c)1-27 organizations

Answer 5

Nonprofits that are tax-exempt, but for which donors do not receive a tax deduction. Includes civic organizations, business leagues, trade associations, labor unions, and social/recreational leagues.

Question 6

Steps to seeking Nonprofit Status

Answer 6

1. File for corporation status in any of the 50 states
2. Create articles of incorporation and bylaws. File articles of incorporation with the state (following IRS guidelines)
3. Once state has approved corporation status, request tax-exempt status with the IRS
4. Receive IRS approval

Question 7

Board of Trustees

Answer 7

Sets up and runs the committee structure within the board. Hires an executive director (which hires staff). Carries fiduciary responsibility to oversee the nonprofit.

Question 8

Prudent Investor Rule

Answer 8

Protects trustees from personal liability in the case of investment loss, as long as errors in judgement were made in good faith

Question 9

Budget Constraint Line

Answer 9

Maps possible combinations of 2 goods that are affordable given a customer’s limited income

Question 10

Financial Statements for a For-Profit Organization (2)

Answer 10

1. Balance Sheet

2. Profit & Loss

Question 11

Financial Statements for a Non-Profit Organization (2)

Answer 11

1. Statement of Financial Position

2. Statement of Activities (general/management, fundraising, and programs)

Question 12

Breakdown of Nonprofit Activity Expenses (3)

Answer 12

1. Management & General
2. Fundraising
3. Programs

Question 13

Purpose of Nonprofit Organization

Answer 13

To fulfill a need or mission, and to serve its community. Requires transparency and accountability.

Question 14

Purpose of For-Profit Company

Answer 14

To make a profit for its owners/shareholders

Question 15

Nonprofit Net Asset Types (3)

Answer 15

1. Unrestricted
2. Temporarily Restricted
3. Permanently Restricted

Question 16

Unrestricted Net Assets (Nonprofit)

Answer 16

Assets & Donations that can be used for any purpose

Question 17

Permanently Restricted Net Assets (Nonprofit)

Answer 17

Donated funds from which only the earnings can be used, not the principal

Question 18

Temporarily Restricted Net Assets (Nonprofit)

Answer 18

Assets & Donations that are designated by the donor to be used for a specific purpose

Question 19

Primary Accounting Difference between Nonprofits & For-Profits

Answer 19

Nonprofits show Net Assets on “equity” section of financial statements
For-Profits show Owners show Owner’s Equity on BS

Question 20

Economic Entity Assumption (GAAP Assumption)

Answer 20

Assumes business functions/records are kept separate from owner’s personal financial transactions

Question 21

Going Concern Assumption (GAAP Assumption)

Answer 21

Assumes business is to be in operation for a long time

Question 22

Monetary Unit Assumption (GAAP Assumption)

Answer 22

Assumes a business will divide financial reporting records into artificial time periods

Question 23

Cost Principle (GAAP Principle)

Answer 23

Requires that assets & liabilities be recorded at their acquisition price (regardless of FMV)

Question 24

Revenue Recognition Principle (GAAP Principle)

Answer 24

Requires revenue to be recorded when it is earning and realized

Question 25

Matching Principle (GAAP Principle)

Answer 25

Expenses must be recorded in the same period as the revenue associated with those expenses

Question 26

Disclosure Principle (GAAP Principle)

Answer 26

Requires all companies to fully disclose information that may impact decisions (buy/sell/hold stock, for example) of users of financial information

Question 27

Objectivity Principle (GAAP Principle)

Answer 27

Financial statements should be based on objective evidence

Question 28

Materiality Principle (GAAP Constraint)

Answer 28

Significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual.

Question 29

Consistency Principle (GAAP Constraint)

Answer 29

Organization must use the same accounting principles and methods from period to period

Question 30

Conservatism (GAAP Constraint)

Answer 30

When choosing between 2 solutions, the one which has the less favorable outcome is the solution which should be chosen

Question 31

Cost Constraint (GAAP Constraint)

Answer 31

The benefits of reporting financial information should justify and be greater than the costs imposed on supplying it

Question 32

Time Period (GAAP Assumption)

Answer 32

Assumption that statements are broken down into artificial time periods (quarter, year)

Question 33

Cash Accounting

Answer 33

Recognize revenue when cash is received and expenses paid

Question 34

Accrual Accounting

Answer 34

Recognize revenue when earned and expenses when incurred

Question 35

Fund Accounting

Answer 35

Allows an organization to track how it's using a pool of resources within a certain activity/group of activities. Allows donors to donate to a particular activity.

Question 36

Form 1023

Answer 36

Tax-Exemption request form. Must be approved by the IRS to be a nonprofit organization.