Question

What fund assumes that the financial principal remains unspent, but that the interest earned on this fund may be spent to improve the nonprofit organization ?

endowment fund, fixed asset, fund restricted fund

, annual fund, or all of the above

Answer 1

Answer: Restricted funds

Restricted funds categorized as permanently restricted and temporary restricted are terms used in a nonprofit organization to categorize funds and equity to provide their goods and services to the people.It provides assurance to the investor that the contributions are used in the manner they are chosen.

Permanently restricted funds are restricted for use by the organization. For example, an organization gets a cash donation with the restriction that the donation cannot be used by the NGO but it can be invested and the interest can be used for the normal organizational operations. Therefore, the principal amount can never be used by the organization but the interest and dividend from the invested amount can be used for operational purposes. Similarly in temporarily restricted funds can be used only for specific situations and for particular programs. For example, an organization can start a fundraising program for a construction project. This fund can be utilized only for the construction of the specific project.

An endowment fund is an investment fund established by the foundation. Endowment funds are income-generating resources. The foundation can use the income but the principal cannot be used. It is often used by universities, hospitals, churches, etc for specific needs or to meet their operational expenses. It is with the stipulation that it will be invested for a specific period of time and can then it can be spent so it is temporarily restricted. Fixed assets are part of the capital fund are also known as the plant funds.