CPA Exam - FAR (Financial Accounting and Reporting)Not-for-Profit EntitiesEasy
A not-for-profit university incurred the following expenses during the year: program services $800,000, management and general $150,000, and fundraising $50,000. What is the total amount of functional expenses that must be reported on the Statement of Activities or in the notes to the financial statements?
- A$950,000
- B$800,000
- C$1,000,000
- D$1,050,000
Show answer & explanationAnswer & explanation
Correct answer: C. $1,000,000
Functional expenses categorize expenses by their purpose or function. The main functional categories are program services, management and general (or administrative), and fundraising. The total functional expenses are the sum of all these categories. $800,000 (program) + $150,000 (management and general) + $50,000 (fundraising) = $1,000,000.
Why the other options are wrong
- A. This omits fundraising expenses.
- B. This only includes program services, omitting other functional expenses.
- D. This amount is incorrect based on the provided figures.
Functional Expenses
Expenses categorized by their purpose or function within a not-for-profit organization, typically program services, management and general, and fundraising.
- Required disclosure for NFPs.
- Presented on the Statement of Activities or in notes.
- Helps users assess how resources are used.
Memory trick: P-M-F: Program, Management, Fundraising – the NFP expense core.