Nonprofit Bookkeeping Test

If you're not an accountant yourself, it can be hard to hire a qualified bookkeeper. How can you tell if an applicant really knows bookkeeping? CPA Dennis Walsh created this terrific assessment test you can give candidates for bookkeeping and accounting jobs. We especially like the chart at the end that shows what training is called for based on which questions were answered correctly or incorrectly:

This 21-question quiz samples from general bookkeeping knowledge as well as nonprofit bookkeeping and compliance matters. Use this assessment test as part of your hiring toolkit as well as for identifying staff training needs. Take it yourself and see how you do!

The Nonprofit Bookkeeping Assessment Test

We recommend that you give an applicant 20 minutes to complete the assessment test. The ability to make accurate choices under time pressure is an important indicator of suitability for this type of work.

1. Which of the following regarding the Statement of Financial Position is true?
a) It is also known as a balance sheet
b) It typically covers a one-year period
c) It includes expenses by functional category
d) Both a and b

2. Under the accrual method of accounting, a donor pledge that is supported by verifiable documentation is recorded in the period the pledge is made.
a) True
b) False

3. Which of the following are typically included in the bank account reconciliation?
a) Bank service charges
b) Outstanding checks
c) Deposits in transit
d) All of the above

4. Which of the following is included in the Statement of Activities?
a) Total fundraising expenses
b) Cash in bank
c) Cash flows from investing activities
d) None of the above

5. Which of the following is an example of a source document?
a) Volunteer time sheet
b) Purchase order
c) Donor pledge card
d) All of the above

6. Costs of operating a vehicle for both program services and organization management should be included within which functional expense category?
a) Program services
b) Management & general
c) Allocate between program services and management & general on a reasonable basis
d) Fundraising

7. Which of the following is an example of an indirect cost that should be shared among functional expense categories?
a) Salary and benefits of the executive director who spends time on program, management, and fundraising duties
b) An information packet to be distributed to program recipients
c) Costs of producing a brochure advertising the annual fundraising dinner
d) Costs of lunch for a board meeting

8. In December 2010, organization X, a nonprofit using a calendar fiscal year, received a grant of $10,000 with donor instructions that it is to be used for general operations in 2011. In which category of support should the grant be classified on X's Statement of Activities for the year ending December 31, 2010?
a) Unrestricted contributions
b) Temporarily restricted contributions
c) Permanently restricted contributions
d) The grant funds should be reported as deferred revenue liability in the December 2010 financial statements and reclassified as an unrestricted contribution in 2011

9. Which of the following statements regarding a trial balance is true?
a) A trial balance must be prepared by a CPA
b) A trial balance is the last item performed in the bookkeeping cycle
c) A trial balance assures that the general ledger is in balance before creating any adjusting entries needed for financial statement preparation
d) None of the above

10. Which of the following should be charged to an expense account?
a) Purchase of a small lot for parking
b) Purchase of an office computer
c) Replacement of a paratransit van engine and transmission
d) None of the above

11. One of the following statements regarding the chart of accounts is true. Which one is it?
a) Accounts are listed in alphabetical order
b) A properly designed chart of accounts helps assure appropriate and consistent classification of transactions
c) Designing the chart of accounts does not require any specialized accounting knowledge
d) A chart of accounts is not necessary with most software-based bookkeeping systems

12. All of the following statements about a contribution confirmation needed by a donor for tax reporting are correct except:
a) It may be sent by email
b) It should include the donor's name, address, and separately list any single contribution of $250 or more
c) It must be sent by January 31 of the following year
d) It must state whether any goods or services were provided in exchange for the donation

13. Within which functional expense category should legal and accounting fees be classified?
a) Program services
b) Management & general
c) Fundraising
d) Allocate to each of the above categories on a reasonable basis

14. When possible, which of the following duties should NOT be performed by the bookkeeper, but should be done by someone else?
a) Preparing a purchase order
b) Approving an invoice for payment
c) Receiving a delivery of goods
d) All of the above

15. Which of the following sources of income are classified as a contribution (donation)?
a) A gift accompanied by restrictions as to its use
b) Program service revenue
c) Interest income
d) None of the above

16. Which of the following is an example of a poor internal control practice?
a) The bookkeeper stamps checks received with a restrictive endorsement at the time the bank deposit is prepared
b) The monthly bank account reconciliation is performed by the board treasurer
c Checks must be signed by both the bookkeeper and treasurer
d) Both a and c

17. A donation of non-cash property is recorded at which of the following values?
a) The amount the donor paid for the property
b) The current fair market value of the property
c) Donations of non-cash property are not recorded on the books
d) Either a or b

18. Which of the following is not an example of an expense account?
a) Office supplies
b) Accounts payable
c) Depreciation
d) Bad debts

19. The balance of loans and other liabilities are presented on which of the following financial statements?
a) Statement of cash flows
b) Statement of activities
c) Statement of financial position
d) Statement of functional expenses

20. Which of the following statements about the IRS form 990 series is true?
a) The Form 990-N e-Postcard may be used by organizations with less than $50,000 of gross income
b) If the organization fails to file an appropriate form 990 for 3 consecutive years, it will automatically lose its tax-exempt status
c) Form 990 must be made available for public inspection
d) All of the above

21. Hands-on math: Please add the following dollar amounts and provide the correct total (provide a calculator or adding machine):

64.15
10,211.19
5.66
1,344,991.04
176.76
898.98
454.19
71.11
44,231.12
96,454.89
156.11
789.43
700.10
2,001,565.32

See below for how to request an Answer/Explanation Sheet, Scoring Guide, and list of training resources. The scoring guide will look like this:
To obtain a free Answer/Explanation Sheet, along with a Scoring Guide and list of training resources, include the following information in an email to Blue Avocado's editor: Name, Email, Title, Organization, Street Address, Telephone. You can send this information by clicking here or by emailing editor at blueavocado dot org. (We chose not to publish the answers online to help preserve the integrity of the test.)

Some notes:

  • Not all questions have the same importance. Don't just look at the total score, but at which questions were answered correctly.
  • Use the Answer/Explanation Sheet to score tests, to strengthen your own undertanding, and to suggest areas where an individual needs to learn more.
  • Because of differences in state laws, we did not include questions on employment-related issues.
  • Thanks to the CPAs and bookkeepers who helped test and refine this quiz.

See also in Blue Avocado:

Editor's note: We couldn't get Dennis to include this question, so we're testing you here: In what movie does Cher play a bookkeeper?

Dennis Walsh, CPA, volunteers his post-retirement time helping North Carolina nonprofits with accounting concerns, work for which he recently received the Community Service Award from the Guilford Nonprofit Consortium. He shares his expertise nationally with nonprofits through Blue Avocado. Through the Deborah and Dennis Walsh Foundation, he has also published "Legal & Tax Issues for North Carolina Nonprofits" and "Man From Macedonia," a memoir by civil rights leader Aaron Johnson.

Comments (58)

  • Anonymous

    Thank you very much.

    Dec 29, 2010
  • Dennis,
    A great resource for board members and executives looking to hire an accountant. It is an interesting challenge to hire an expert when you don't have the expertise to evaluate their expertise. This goes a long way toward making sure the person can handle the job.

    Steve Zimmerman

    Dec 29, 2010
  • Thank you Steve. And thanks for your great feedback during development.

    Dec 29, 2010
  • Thank you for such valuable content!

    Dec 29, 2010
  • How timely issue #59 of Blue Avocado is!  Our current bookkeeper is getting ready to drastically scale back hours at a time when the role is growing, and we need to find suitable help in that area.  The Nonprofit Bookkeeping Assessment Test will be a big help in screening applicants.  Could we please get the Answer/Explanation Sheet and Scoring Guide?

    Dec 29, 2010
  • Please send the Answer/Explanation Sheet, along with a Scoring Guide and list of training resources, related to your quiz for testing accountant applicants.  Thanks for providing such useful information in your newsletters. Cheers!

    Dec 29, 2010
  • Business Manager at Catholic Youth Camp. Please send a copy of the answer sheet for the bookkeeping quiz. Thanks. Keep up the great work, Julie

    Dec 29, 2010
  • Please send the non-orofit bookkeeping test's Answer/Explanation Sheet, along with a Scoring Guide and list of training resources to me. Blue Avocado has been a tremendous resource! thanks

    Dec 29, 2010
  • Please email me the answers to the bookkeeping test. It is excellent!

    Dec 29, 2010
  • Please email me the answer sheet for the nonprofit bookkeeping test. I thought the test was very well done. My contact information is below. Thanks, Lisa

    Dec 29, 2010
  • I would like to request a copy of the answer sheet to the Nonprofit Bookkeeping test published December 26th Thank you, and thanks for the great article.

    Dec 29, 2010
  • Dear Editor, Thank you so much for publishing this test – I plan to incorporate it into our financial standards and procedures.  Of course, to do so, I will need the answers and additional information.

    Thank you for a wonderfully informative website – especially for those of us who still feel new to the nonprofit world.

    Dec 29, 2010
  • I am writing to request the answers, etc. for the bookkeeping quiz. Here is the information you requested: (omitted for publication)  This is really a fantastic tool, thanks so much! Andrea

    Dec 29, 2010
  • Dear Editor, Please send a copy of the Nonprofit Bookkeeper Assessment scoring sheet/guide as referenced in the latest Blue Avocado newsletter. I work with several nonprofit organizations (small history museums) that I know will benefit from this information. As always, this was a great issue. I didn't even know there was such a thing as foundation affinity groups! Many thanks, Carlyn

    Dec 29, 2010
  • What a great tool!

    Dec 29, 2010
  • I really enjoyed the nonprofit bookkeeping test and would like the answers/explanation sheet, scoring guide, etc. Thanks, Jane

    Dec 29, 2010
  • This is great. I am going to take the test to see how I would do. It will also help me hire my next bookkeeper. Thank you.

    Dec 29, 2010
  • Thank you, Blue Avocado friends, for this excellent CPA acumen assessment. This is a great resource! My organization has a wonderful bookkeeper, but I work with other groups who I hope will make use of this assessment soon. I'd appreciate a scoring guide and answer key, sent to my emai if possible. A fabulous and insightful - and super useful - tool from Blue Avocado. Thanks! -Lauren

    Dec 29, 2010
  • Could I get the answers to the accounting quiz? We've recently switched to the accrual method so I'm anxious to see how my knowledge holds up with reality. David

    Dec 29, 2010
  • Bookkeeper for nonprofit, former Accounts and Budget Manager for EWB-USA. Well done. Would like to see questions about audit procedures and more control deficiencies....

    Dec 29, 2010
  • Thanks for that awesome accounting test! Please send me the answers. Take care, Laura

    Dec 29, 2010
  • May I get an answer sheet for the Nonprofit Bookkeeping test. I had always used a short calculator test, and a Quickbook test - this is much more thorough. Thanks

    Dec 29, 2010
  • Thank you for this. I wish I'd had it before I hired the bookkeeper I have just fired. Barbara

    Dec 29, 2010
  • Please send me the answers to this accounting quiz. I desparately needed this a few months ago and will now save it for the next time I need it. I really enjoy Blue Avocado, but this is unbelievably helpful to a CEO who is a social worker by training. Mahalo Hauoli Makahiki Hou

    Dec 29, 2010
  • Regarding the Nonprofit Bookkeeping Test, I'd appreciate a copy of the answer and explanation sheet and supplemental material. Now that I've taken the test, I would like to see if I missed any (or how many I missed), but in addition, I've forwarded the test to our Director of Finance who would be hiring any new accounting/bookkeeping personnel. I think the test is a good way to assess one's understanding of the accounts and how some transactions should be handled. I am Treasurer and Board Member of A Better Way.

    Dec 30, 2010
  • Thanks for this informative article. We are in transition from "check writer" to "bookkeeper" and this should help us separate the two areas of responsibility. Look forward to receiving the answers to the test --

    Dec 30, 2010
  • Thanks heaps for this - it looks easily adaptable to Australian accounting systems and legislation. Happy 2011 to all at Blue Avocado from one of your Aussie fans :-) Cheers Gigi

    Dec 30, 2010
  • As of today we have more than 200 requests for the answer sheet, so clearly Dennis' test has struck a chord. And a big congratulations to Regenia Bailey of Iowa City for being the first person to answer the question correctly about the movie in which Cher played a bookkeeper . . . Moonstruck!

    Dec 30, 2010
  • THANK YOU! Thanks for a great newsletter. I have yet to see an issue that does not include something of value --- Love those 3 minute vacations too! Alice

    Dec 30, 2010
  • Anonymous

    Love this Bookkeeping Test. Please send me the answer sheet and any related material. Thank you so much for all the valuable information in Blue Advocado. Happy New Year!

    Jan 03, 2011
  • Chiming in with all the former comment'ers please forward me the answer and scoring sheet....we made up a test similar to this possibly 6 years ago and were totaly ready to hire a lovely person who had all the related skills we required in the job but, upon reviewing his responses to our CPA composed test we found the applicant failed the test big time! Was a real eye opener and stopped the interview/hiring dead in its tracks! Would love to also have this test in our tool bag for future use. Thank you greatly! Carolyn Moore Executive Director Island Coast AIDS Network (ICAN) Ft. Myers, FL 33901

    Jan 04, 2011
  • This is a brilliant tool.

    Jan 06, 2011
  • Hi everyone! This is posted by Susan Sanow. I have responded to ALL your requests on behalf of Blue Avocado. It has been a pleasure sharing such a valuable document with all who are interested. I have been most impressed with the many more ways you are using the document. While it was intended to use for prospective bookkeepers, our readers will be using it in other ways, Some are using it to evaluate their own knowledge. Some want to evaluate their current bookkeeping staff and others have indicated an interest in using as an educational tool for their non-financial staff AND for board members! The test has been requested by executive directors, board members, free-lance bookkeepers, consultants and CPAs have taken advantage of this, too! Requests have come from all over the United State, some in Canada ... and a very strong interest from Australia. Who knew?

    Jan 07, 2011
  • Thanks again to everyone for the nice feedback and support of the quiz and related resources. I received the following comments from a CPA colleague who limits her practice to 501(c)(3) nonprofits. She raises some excellent points that I feel should be considered in framing one’s expectations of a bookkeeper:

    "I like to distinguish between an accountant’s role and a bookkeeper’s role for several reasons. One is to help manage clients’ expectations. In several cases, nonprofit executives have complained that their bookkeeper doesn’t know how to do accruals or doesn’t understand financial statements, or doesn’t know how to create a system of procedures, etc. The executives don’t know enough about accounting themselves to realize that their expectations are unreasonable. They know from their colleagues at other nonprofits that a competent bookkeeper can be hired for $18-$25/hour, but if they don’t understand the difference between basic bookkeeping and accounting, they are setting themselves up for disappointment, and causing their poor bookkeeper unwarranted grief. Another reason I make that distinction when talking with nonprofit executives is to describe the value that my firm can add to their operations – they don’t necessarily need to hire us to do their basic bookkeeping, but if they don’t have someone on staff who can pass the Dennis-test, they should have my firm fill in the gaps and provide oversight. That’s an additional perspective – just thought I’d share. Thank you again for sharing your terrific article. P.S. I’m guessing “Moonstruck”, but that’s a wild guess!" Mig Murphy Sistrom, CPA  http://nonprofitcpa.net/

    Jan 10, 2011
  • Anonymous

    You made a huge difference for me in my hiring process. Thank you for
    the answers to the test. You are amazing.

    Sue L.
    Director of Finance
    Mountlake Terrace, Washington

    Apr 15, 2011
  • I am the GC for a small non-profit and head of the audit Committee. I am sure this will be useful to improve my knowledge and the knowledge of the volunteer Treasurer who keeps the books.

    Perhaps you can answer a question for me. I am not familiar with the terms "Statement of Financial Position"( Question #1) and "Statement of Activities." (Question # 4) I see in the answer sheet that these terms apply to the "Balance Sheet" and "Profit and Loss Statement". This organization, ( the RB Chorale, Inc which is a 501(c)3 corp and carries your insurance ) has an annual gross income between $50K -$100K and keeps its books on a cash basis in Quicken. Our taxes are filed on IRS form 990-EZ. Using Quicken, we generate and use for management a P & L statement, but don't generate or see the need for a Balance Sheet. We try to keep things simple, but are we missing something?

    Bruce

    May 19, 2011
  • If you want to seek grants in the future, then prepare Form 990 (not N or EZ) and post it to GuideStar. Do this every year, and fill in all the other GuideStar information too. That will make your chorale seem like a well run NPO to any grantmaker. Dave.

    May 23, 2011
  • Dear Mr. Bean,

    Thanks for your interest in the bookkeeper test. It's been well received and I hope you have found it helpful.

    One of the objectives of the quiz was to provide accompanying explanations of the answers that help educate persons about the unique aspects of nonprofit accounting. A good case in point is your recognition of the statement of activities as the nonprofit equivalent of a business p&l statement. Unfortunately, off the shelf accounting software does not consider such differences and more importantly do not facilitate the special financial statement presentation issues of nonprofit activities. That said, in the situation you describe, you're probably just fine using a simple p&l format to monitor your revenues and expenses. Of course, comparison with your budget is very important. And if your board does not feel a statement of financial position, a/k/a balance sheet is needed for your internal use, then that's certainly fine also. If you're only substantial asset is your cash account you can probably get what you need from review of the monthly bank account reconciliation.

    I should mention that if you are preparing a Form 990-EZ then you actually are preparing a balance sheet in the relevant section of that form. I hope this reply is of help.

    All the best in your worthy work, Dennis Walsh

    May 19, 2011
  • Anonymous

    Thanks for sharing this resource. I will share this test with the nonprofits I work with when they are interviewing potential accountants.

    May 23, 2011
  • Thank you SO much for this service. I've been volunteering bookkeeping for local, very small, community organizations for 15 years now - farmers market, garden club, Buddhist meditation center, etc. (Our whole county's population is only 12,000 and we're the second poorest in the state most years. So there are not a lot of extra professionals around to meet this need.) I've been using Quicken for 20 years and Quickbooks for 10, after a 20 year professional life of teaching record keeping and taxes to farm families - not to mention designing record keeping systems for a variety of businesses. So, while I'm not a professional I've felt pretty competent. Our educational recycling center has big dreams and gone all the way - incorporating and achieving it's 501(c)(3) status. None of our local CPA's will touch nonprofit stuff because it's "too difficult." So, I've read as much as I can, especially with reference to IRS reporting requirements, GAAP rules, etc.. It was a case of there wasn't anyone else to help out an organization with a meager budget of $100-$1000 a year! However, the recycling center is now getting involved in a couple of $1,000 grants (one Federal) which require more professional-looking statements that a spreadsheet can provide. Thank goodness we've had the audits waived! So, to save time (just print out those pre-formatted reports - ha!) we bought QB Premier Non-Profit from Techsoup. I've been going crazy ever since. It might not be so bad, but I'm trying to track "inventory" since for grant reporting we have to know pounds sold of donated recyclables that are kept out of the landfill. That means using "items" in QB-NP in a way that seems different from what they were meant for. None of the nonprofit references I've found have addressed anything similar to our situation. I was starting to feel very stupid, as if I wasn't a very capable/knowledgeable bookkeeper. I found Blue Avocado while surfing in desperation, waiting for Amazon to ship a copy of Kathy Ivens' book on Running QuickBooks in NonProfits. (I hope it'll be good for something at least! Many of the NP bookkeeping guides seem to be way too basic for my purposes.) Anyway, I was starting to think, "Maybe all those CPA's were right...non-profit IS too difficult." I was beginning to consider using my regular QB, with a nonprofit chart of accounts. That would spoil the whole purpose, however - those darn "looking better" reports. That's when I found Walsh's test for prospective nonprofit bookkeepers. In spite of it's billing, I realize it doesn't really test that much. However, I did very well on the test and it came just at the right time. Doing well on that little test did wonders for my self-esteem and sanity. Now I feel confident again that it'll be possible to solve this puzzle. Keeping the recycling center's records and doing all the financial reports, restricted contributions, activity records, volunteer tracking and grant reporting has been fine without QB up until now, so I know I can do it! I'm not totally ignorant after all, just inexperienced in this particular area. (grin) I'm back to my smiling self again. Thank you for all the other references you provided as well. LOTS of good info, though the article from Walsh on AVO treasurers brought me a time of panic. We've been fund raising and applying for grants to buy a used baler; I'd never heard of the Unified Solicitation Registration before. It took me awhile to wade through the info enough to realize that Missouri doesn't require 501(c)(3)s to register. Whew! Anyway, thank you again for offering this service. I'm looking forward to new articles as they come out.

    Jun 03, 2011
  • Anonymous

    I'm having trouble knowing how to keep separate funds "separate" without having to open up different bank accounts for each fund and creating a load of bank statements each month. I do class accounting but don't want the $$ in the checkbook if I am not to use $$ except for special designated scholarships/funds etc. How do you keep $$ separate? Should you temporarily transfer it under into an account titled "prepaid expenses" in Other Current Asset? clyford@sunrisecounty.org

    Jul 29, 2011
  • Unless restricted contributions are stipulated to be kept in a separate account, you should not need to use more than a single account because of the need to track such funds. It creates added work, cost, and control issues. Tracking and reporting restricted funds effectively starts with a properly designed nonprofit chart of accounts. A good prototype called the "Uniform Chart of Accounts" (UCOA) was developed by the National Center for Charitable Statistics, and can be downloaded for free at http://nccs.urban.org/projects/ucoa.cfm. It provides an example of how net asset and revenue accounts can be set up to facilitate initial recording, reclassification, and reporting of restricted funds. Blue Avocado host Compass Point Nonprofit Services is a collaborating partner in the UCOA project. It sounds like you may need to invest in some nonprofit accounting assistance to customize your chart of accounts and help you develop step by step procedures for accounting for restricted contributions. You should be able to find a qualified consultant in your area by talking with other nonprofit executives, contacting a state nonprofit association, or a local community foundation or United Way organization. Dennis Walsh

    Jul 30, 2011
  • I thought this was one of the most pertinent, down to the real world way of approaching this subject I've ever seen, and just as a hiring tool, but as a training tool as well. You guys do good work. Thanks, Sheila

    Aug 13, 2011
  • Anonymous

    This is great article! I want to see the answers of the quiz! Thanks Soyoung

    Aug 22, 2011
  • To maintain the integrity of the bookkeeping quiz, we have not published the answer sheet online. You must send an email to editor@blueavocado.org with your email, name, organization, and street address and it will be sent to you. Thank you!

    Aug 22, 2011
  • Anonymous

    Excellent test, especially identifying training needs. Any thought to developing similar tests for other areas--payroll come to mind. Answer to bonus question is indeed Moonstruck.

    Sep 04, 2011
  • Dennis, Awesome work on helping NPO with their accounting needs. I plan to do that myself. I have CPA background and worked in non profits for a few years. Now would be a good time to combine the two and help non profits who will have less contributions due to the economy and might therefore find it difficult to hire full time accountants. Sheela

    Dec 07, 2011
  • Anonymous

    WOW great test here. I just took it myself. This is great for those seeking qualified bookkeepers.

    Jan 30, 2012
  • Anonymous

    Dennis, I have e-mailed and followed the link on this site to get the answers to this quiz, but have yet to receive them. I am interviewing candidates next week and hoped to have this ready to give each one for whom we had interest. Is there any other way to get the answers? I'm anxious to see how I did on the test myself! Stacey Butts Finance Director The Sight Center of Northwest Ohio

    Feb 02, 2012

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