Which of the following is a probable use a donor would make of the external financial statements of a not-for-profit entity?
A)To determine the proportion of entity resources directed to programs as opposed to fund-raising.
B)To determine the creditworthiness of the entity for investment purposes.
C)To determine the salaries paid to all employees of the entity.
D)To determine the budget of the entity.

Question

Quizplus · Accepted Answer

Donors would be interested to know how much of their donations are being utilized for the programs run by the not-for-profit entity, as opposed to being used for fundraising and administrative expenses. The external financial statements provide information about the use of resources, including the expenses incurred and the revenue generated by the entity, which can help donors make an informed decision about where to direct their donations. Option B is incorrect because the external financial statements may not provide sufficient information to make a judgment about an entity's creditworthiness for investment purposes. Option C is incorrect as not all employee salaries may be disclosed in the external financial statements. Option D is incorrect because the budget is a forward-looking statement and may not be reflected in the external financial statements.

Which of the Following Is a Probable Use a Donor