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In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?
- a)It is recorded as a liability.
- b)It is treated as revenue for the period.
- c)It is credited to a special purpose fund.
- d)It is directly expensed in the Income and Expenditure Account.
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
In not-for-profit accounting, what is the treatment for a donation rec...
Donations received for a specific purpose are credited to a special purpose fund, reflecting the restricted use of these funds for a designated activity, such as constructing a pavilion.
This worksheet reflects a mix of easy, medium, and difficult questions to assess understanding of the financial statements of not-for-profit organizations. The solutions provide additional context and explanation to reinforce learning.
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This worksheet reflects a mix of easy, medium, and difficult questions to assess understanding of the financial statements of not-for-profit organizations. The solutions provide additional context and explanation to reinforce learning.
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In not-for-profit accounting, what is the treatment for a donation rec...
Understanding Donations for Specific Purposes in Not-for-Profit Accounting
In not-for-profit organizations, donations received for specific purposes, such as constructing a pavilion, are treated differently than general donations. Here’s a detailed explanation of the correct treatment:
Nature of Restricted Donations
- Donations designated for specific projects are known as restricted donations.
- These funds are earmarked for a particular use, meaning they cannot be utilized for general operational expenses.
Record Keeping
- When a donation is received for a specific purpose, it is credited to a special purpose fund.
- This special purpose fund is a separate account that tracks the inflow and outflow of funds related to the designated project.
Financial Reporting
- The treatment of these funds ensures transparency and accountability in financial reporting.
- Recording the donation in a special purpose fund distinguishes it from unrestricted funds, helping stakeholders understand how resources are allocated.
Impact on Financial Statements
- By crediting the donation to a special purpose fund, the organization can clearly reflect the funding for the pavilion in its financial statements.
- This approach helps in reporting the progress and expenses related to specific projects, which is crucial for donor trust and compliance.
Conclusion
In summary, when a not-for-profit organization receives a donation for a specific purpose, such as constructing a pavilion, it is appropriately credited to a special purpose fund. This method promotes accountability, facilitates accurate financial reporting, and ensures that donor intentions are honored.
In not-for-profit organizations, donations received for specific purposes, such as constructing a pavilion, are treated differently than general donations. Here’s a detailed explanation of the correct treatment:
Nature of Restricted Donations
- Donations designated for specific projects are known as restricted donations.
- These funds are earmarked for a particular use, meaning they cannot be utilized for general operational expenses.
Record Keeping
- When a donation is received for a specific purpose, it is credited to a special purpose fund.
- This special purpose fund is a separate account that tracks the inflow and outflow of funds related to the designated project.
Financial Reporting
- The treatment of these funds ensures transparency and accountability in financial reporting.
- Recording the donation in a special purpose fund distinguishes it from unrestricted funds, helping stakeholders understand how resources are allocated.
Impact on Financial Statements
- By crediting the donation to a special purpose fund, the organization can clearly reflect the funding for the pavilion in its financial statements.
- This approach helps in reporting the progress and expenses related to specific projects, which is crucial for donor trust and compliance.
Conclusion
In summary, when a not-for-profit organization receives a donation for a specific purpose, such as constructing a pavilion, it is appropriately credited to a special purpose fund. This method promotes accountability, facilitates accurate financial reporting, and ensures that donor intentions are honored.
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In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?a)It is recorded as a liability.b)It is treated as revenue for the period.c)It is credited to a special purpose fund.d)It is directly expensed in the Income and Expenditure Account.Correct answer is option 'C'. Can you explain this answer?
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In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?a)It is recorded as a liability.b)It is treated as revenue for the period.c)It is credited to a special purpose fund.d)It is directly expensed in the Income and Expenditure Account.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?a)It is recorded as a liability.b)It is treated as revenue for the period.c)It is credited to a special purpose fund.d)It is directly expensed in the Income and Expenditure Account.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?a)It is recorded as a liability.b)It is treated as revenue for the period.c)It is credited to a special purpose fund.d)It is directly expensed in the Income and Expenditure Account.Correct answer is option 'C'. Can you explain this answer?.
In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?a)It is recorded as a liability.b)It is treated as revenue for the period.c)It is credited to a special purpose fund.d)It is directly expensed in the Income and Expenditure Account.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?a)It is recorded as a liability.b)It is treated as revenue for the period.c)It is credited to a special purpose fund.d)It is directly expensed in the Income and Expenditure Account.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In not-for-profit accounting, what is the treatment for a donation received for a specific purpose, like constructing a pavilion?a)It is recorded as a liability.b)It is treated as revenue for the period.c)It is credited to a special purpose fund.d)It is directly expensed in the Income and Expenditure Account.Correct answer is option 'C'. Can you explain this answer?.
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