Donated funds for capital purchases should be used for what?

• A. They can be used for any operating expense.
• B. They must be used for capital purchases only.
• C. They can be used for payroll bonuses.
• D. They must be used within 60 days.

Answer: (B)

Donor-restricted funds are designated for a specific purpose, and when that purpose is capital purchases, the money must be used only to acquire or upgrade long-term assets such as buildings or equipment. It cannot be diverted to operating expenses or discretionary items like payroll bonuses. In the accounting records, these funds are typically recorded as restricted until the capital purchase is completed, at which point the restriction is satisfied and the funds are released from restriction. There isn’t a universal rule that they must be spent within a fixed number of days; the timing is determined by the donor’s restrictions or the organization’s policies for releasing restricted funds.