Question

A donor gave $75,000 to a nongovernmental, not-for-profit charity with instructions that the funds be transferred to Sam Smith, an individual who lost his home in a fire. The not-for-profit would:

Answer 1

Answer:

B) Record the $75,000 cash and credit a liability

Explanation:

Possible options:

• A) Record the $75,000 cash and credit temporarily restricted revenue.
• B) Record the $75,000 cash and credit a liability
• C) Do either (a) or (b), depending upon the policy of the not-for-profit
• D) Not record the transaction.

Non-for-profit charities must record all cash donations, but since the funds were donated for an specific purpose, their use is restricted. Therefore, the charity must record a liability (which has a normal credit balance).