Question

Cash received by a nongovernmental NFP in year 1 that the donor stipulates is to cover operating expenses of the following year should be recognized as an increase in temporarily restricted net assets in year 1 and as net assets released from restrictions in year 2.

a) True
b) False

Answer 1

Cash received by a nongovernmental NFP in year 1 that the donor stipulates is to cover operating expenses of the following year should be recognized as an increase in unrestricted net assets in year 1, not temporarily restricted net assets.

Step-by-step explanation:

The correct answer is False. When a nongovernmental NFP receives cash that a donor stipulates is to cover operating expenses of the following year, it should be recognized as an increase in unrestricted net assets in year 1, not temporarily restricted net assets. This is because the cash can be used immediately for operating expenses without any donor restrictions.