CPA Not-for-Profit Accounting Practice
Text Questions (Actual Exam 2026-2027)
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1. Which characteristic distinguishes a not-for-profit (NFP)
organization from a for-profit entity?
A. It cannot earn a profit.
B. It has no owners who receive residual earnings.
C. It pays no taxes.
D. It cannot own assets.
Answer: B
Rationale: NFP organizations have no ownership interests or
shareholders entitled to residual earnings.
2. The primary objective of financial reporting for not-for-
profit organizations is to:
A. Maximize shareholder wealth.
B. Report taxable income.
C. Provide useful information to donors, creditors, and other
resource providers.
D. Report earnings per share.
,Answer: C
Rationale: NFP financial statements focus on accountability
and stewardship for donors and other stakeholders.
3. Which financial statement is unique to not-for-profit
organizations?
A. Balance Sheet
B. Statement of Activities
C. Income Statement
D. Statement of Retained Earnings
Answer: B
Rationale: The Statement of Activities replaces the income
statement used by business entities.
4. Net assets without donor restrictions are:
A. Permanently restricted.
B. Temporarily restricted.
C. Available for general use unless internally designated.
D. Never reported.
Answer: C
Rationale: Net assets without donor restrictions may be used
for general operations unless designated by the governing
board.
,5. Contributions received with no donor stipulations are
reported as:
A. Deferred revenue.
B. Net assets with donor restrictions.
C. Net assets without donor restrictions.
D. Liabilities.
Answer: C
Rationale: Unrestricted contributions increase net assets
without donor restrictions.
6. A donor contributes cash that must be used to build a
new library. The contribution is classified as:
A. Without donor restrictions.
B. With donor restrictions.
C. Deferred revenue.
D. Investment income.
Answer: B
Rationale: Purpose restrictions imposed by donors create net
assets with donor restrictions.
7. Which accounting basis is generally required for external
financial statements of NFPs?
A. Cash basis
B. Modified cash basis
, C. Accrual basis
D. Tax basis
Answer: C
Rationale: GAAP requires accrual accounting for external
reporting.
8. A promise to give that is unconditional should be
recognized:
A. When cash is received.
B. Only after collection.
C. As contribution revenue when promised.
D. Never.
Answer: C
Rationale: Unconditional promises are recognized
immediately at fair value.
9. Conditional promises to give are recognized when:
A. The promise is signed.
B. Cash is pledged.
C. The donor's conditions are substantially met.
D. The fiscal year ends.
Answer: C
Rationale: Conditional contributions are recognized only after
barriers are overcome.
Text Questions (Actual Exam 2026-2027)
Correct Detailed & Verified ANSWERS
(100% Accurate Solutions) ALREADY
GRADED A+||NEWEST VERSION Of The
Exam Guarantee Pass!!
1. Which characteristic distinguishes a not-for-profit (NFP)
organization from a for-profit entity?
A. It cannot earn a profit.
B. It has no owners who receive residual earnings.
C. It pays no taxes.
D. It cannot own assets.
Answer: B
Rationale: NFP organizations have no ownership interests or
shareholders entitled to residual earnings.
2. The primary objective of financial reporting for not-for-
profit organizations is to:
A. Maximize shareholder wealth.
B. Report taxable income.
C. Provide useful information to donors, creditors, and other
resource providers.
D. Report earnings per share.
,Answer: C
Rationale: NFP financial statements focus on accountability
and stewardship for donors and other stakeholders.
3. Which financial statement is unique to not-for-profit
organizations?
A. Balance Sheet
B. Statement of Activities
C. Income Statement
D. Statement of Retained Earnings
Answer: B
Rationale: The Statement of Activities replaces the income
statement used by business entities.
4. Net assets without donor restrictions are:
A. Permanently restricted.
B. Temporarily restricted.
C. Available for general use unless internally designated.
D. Never reported.
Answer: C
Rationale: Net assets without donor restrictions may be used
for general operations unless designated by the governing
board.
,5. Contributions received with no donor stipulations are
reported as:
A. Deferred revenue.
B. Net assets with donor restrictions.
C. Net assets without donor restrictions.
D. Liabilities.
Answer: C
Rationale: Unrestricted contributions increase net assets
without donor restrictions.
6. A donor contributes cash that must be used to build a
new library. The contribution is classified as:
A. Without donor restrictions.
B. With donor restrictions.
C. Deferred revenue.
D. Investment income.
Answer: B
Rationale: Purpose restrictions imposed by donors create net
assets with donor restrictions.
7. Which accounting basis is generally required for external
financial statements of NFPs?
A. Cash basis
B. Modified cash basis
, C. Accrual basis
D. Tax basis
Answer: C
Rationale: GAAP requires accrual accounting for external
reporting.
8. A promise to give that is unconditional should be
recognized:
A. When cash is received.
B. Only after collection.
C. As contribution revenue when promised.
D. Never.
Answer: C
Rationale: Unconditional promises are recognized
immediately at fair value.
9. Conditional promises to give are recognized when:
A. The promise is signed.
B. Cash is pledged.
C. The donor's conditions are substantially met.
D. The fiscal year ends.
Answer: C
Rationale: Conditional contributions are recognized only after
barriers are overcome.
