Transactions

Question 1

Is it necessary for an organization to pay off its accounts payable all at once?

Answer 1

No. Each time a payment is made, Cash (an asset) and Accounts Payable are (a liability) are reduced by corresponding amounts until the Accounts Payable are cleared.

Question 2

What is accounts payable?

Answer 2

It is a current liability if the amount can be expected to be paid off in the current year.

Question 3

What is one of accountings central concepts in terms of the fundamental equation?

Answer 3

That the fundamental equation must always balance. The net effect of any transaction on the fundamental equation must be zero. This is also known as double-entry bookkeeping.

Question 4

What are the two simple questions I can ask myself to answer the effects of different transactions?

Answer 4

1. ) Did the organization deliver a good or service? Did it receive a good or service?
2. ) Did the organization make a payment? Did it receive a payment?

Question 5

What are the effects of revenues and expenses on net assets?

Answer 5

• Revenues increase net assets

- Expenses decrease net assets

Question 6

Can an organization have a high operating margin and a low total margin?

Answer 6

Yes, but the operating margin should always be high.

Question 7

Fundamental Equation of Accounting

Answer 7

Assets = Liabilities + Net Assets

Question 8

What are the bases of accounting?

Answer 8

1. ) Cash Basis
2. ) Accrual Basis of Accounting
3. ) Modified Accrual

Question 9

Accrual Basis of Accounting

Answer 9

=

Question 10

Modified Accrual Basis of Accounting

Answer 10

=

Question 11

Assets

Answer 11

=

Question 12

Liabilities

Answer 12

=

Question 13

Net Assets =

Answer 13

Net Assets = Revenues - Expenses

Question 14

Liquidity (Mathmatically)

Answer 14

Current Assets > Current Assets

Question 15

Solvency

Answer 15

= Long Term Assets > Long Term Liabilities

Question 16

In-Kind revenues are…

Answer 16

a core part of many non-profits’ financial operation, they’re also difficult to measure and sometimes contentious.

Question 17

Are marketable securities the same as short-term investments?

Answer 17

Yes.

Question 18

What are the statements used to analyze Non-Profits?

Answer 18

1. ) Financial Position
2. ) Activities
3. ) Functional Expenses
4. ) Cash Flows
5. ) Notes

Question 19

Statement of Financial Position

Answer 19

=

Question 20

Statement of Activities

Answer 20

=

Question 21

Statements of Functional Expenses

Answer 21

=

Question 22

Statements of Cash Flows

Answer 22

?

Question 23

For a Non Profit, how would you measure growth of net assets?

Answer 23

By looking at the Net Asset Growth Ratio (NAG)

Profit / (Net Assets)

Question 24

Do liquidity and solvency affect each other?

Answer 24

Yes, liquidity and solvency are interrelated.

Question 25

What does profitability affect?

Answer 25

Profitability affects both liquidity and solvency.

Question 26

Debt Service =

Answer 26

Decrease Cash, an Asset then = Principal (Reduces a liability) + Interest (Expense which decreases net assets)

Overall, debt service is an expenditure.

Question 27

“Committed to Providing” signals…

Answer 27

Increase pledges receivable

Question 28

Paying off principal means…

Answer 28

paying off long terms debt. Long term debt is a liability.

Question 29

When you pay off principal then you reduce…

Answer 29

long term debt, which is a liability.

Question 30

The portion of loan payments for interest is…

Answer 30

an expense and therefore reduces net assets.

Question 31

Bad Debt causes…

Answer 31

net assets to go down.

Question 32

When can an entity be profitable but cash poor? (Reading the Cash Flow Statements)

Answer 32

If the accounts receivable is large because

1. ) If other assets go up then cash goes down.
2. ) If other assets go down than cash goes up.
3. ) If liabilities increase then cash increases.

Question 33

Change in Cash (For Cash Flow Statement) =

Answer 33

(Change in Liabilities) - (Change in other Assets) + (Change in Net Assets)

Question 34

Earned income is always…

Answer 34

unrestricted

Question 35

Liquidity…(long hand)

Answer 35

helps to measure a nonprofit’s ability to continue in operations in the short term

Question 36

Solvency…(long hand)

Answer 36

1. ) Basic definition is whether net assets are positive.

2. ) Represents a prediction of long term viability.