This quiz will test a person's church accounting knowledge.

There are two main accounting methods called cash accounting and accrual. See Investopedia.

GAAP stands for Generally Accepted Accounting Principles. See the definition at the CFA Institute. Keep in mind all churches must follow GAAP.

When the church pays for a service, money leaves the organization from an asset account which indirectly lowers the equity (or fund balance).

This is an accounting 101 question. Please see Investopedia. This equation is not the same as Assets - Liabilities = Equity (or Fund's Balance). The equation has multiple formulations based on what is needed - ie balance sheet.

The only person that can restrict contributions are donors. While the church's council may say they are taking donations for a purpose, they can later change that purpose by another church's council vote or whatever procedure they have described in their by laws.

According to FAS Topic 958 the Statement of Activities is equivalent to the income statement that for profit industries use.

The other options while they are paid out of the church's accounting checkbook, they are not considered expenses. Paying a bank loan lowers the principle of a liability.

The statement of financial position is the only report that gives you the dollar amounts as of one point in time. This is commonly called the balance sheet in for profit companies. The other financial statements like statement of activities and cash flow report show how the money came into the company and left the company. The budget report is not considered a financial report.

Liabilities plus equity will equal assets. This comes down to the balance sheet equation where Liabilities + equity equals assets.

When multiple checkbooks (or worst sub accounts of checkbooks) are used, that means the system can't do proper fund accounting. It can't take the assets account (the checkbook) and break it up into various funds - or equity pieces. Using any type of accounts in the chart of accounts to define the funds is incorrect. They belong in the equity section. To read more, check this article out.

Donation revenue (or any revenue) accounts are not reported on the balance sheet.

Churches are not exempt from the UBIT (Unrelated Business Income Tax). If they have gross receipts of over $1,000.00 they must file a tax form. This pdf goes over what UBIT and gives some clear examples. As always consult a CPA for your church's unique operation.

As stated in the correct answer, liabilities are what is owed to someone else. Funds and their balances are what the church currently owns - ie money in the bank so to speak. It is not a debt! The chart of accounts has five distinct areas - assets, liabilities, revenue, expenses, and equity. Funds are considered equity accounts according to FASB. These five areas have specific account types that belong within each one. In other words you wouldn't list an expense in the revenue section. Likewise you would list an equity account in the liability area.

The work around for Quickbooks and funds is to use classes. However, according to Quickbooks own site they say this about classes.

The Balance Sheet by Class report can’t classify some transactions in QuickBooks. Some of those transactions create unclassified amounts on the report.

By not classifying every single transaction's disbursements, your balance sheet will never be right. Some of the transactions that can't be classified are journal entries with unbalanced classes, a payroll liability check, and transfer of funds between two church funds.