The Ultimate Nonprofit Accounting Glossary
The amount owed to others for services or merchandise received by the organization.
The amount owed to the organization for services or merchandise provided to others. Referred to as Grants Receivable when the amount is related to a grant agreement.
A system of financial recordkeeping in which transactions are recorded as expenses when they are incurred (i.e. when a bill is received for merchandise or services provided to the organization) and as income when it is earned (i.e. when services or merchandise is provided by the organization, or the organization receives a commitment of a contribution) rather than when cash is paid or received. The alternative is Cash-basis accounting.
Accrued Expense or Liabilities
Items incurred during an accounting period for which payment is postponed. Examples include accrued salaries, accrued sales tax payable, and accrued rent payable.
Interest costs that have accumulated, but are not yet due or payable.
The total amount the value of fixed assets has decreased to date due to general wear and tear or obsolescence.
AIA Document G702
A form created by the American Institute of Architects to document the costs of work completed as of a certain date and the cost of work yet to be completed under a construction contract.
A method of accounting that divides expenses among different program, administrative, and fundraising categories based on a formula that recognizes the use of the resources such as use of the facility or staff time.
Allowance for Doubtful Accounts
An amount reflecting the portion of the accounts receivable which the organization reasonably believes it may not collect. The amount is often an estimate based on experience or trends in the industry.
Repayment of loan principal and interest.
A formal report usually created by a certified real estate appraiser evaluating a real estate property in order to determine its value. One or more of three valuation methods are used: cost, replacement value, and market value.
What is owned by the organization.
An alternate name under which an individual or a legal entity may conduct business. Also known as a DBA or doing business as name.
A financial report that has been tested and verified for accuracy by a Certified Public Accountant (CPA) and prepared in accordance with Generally Accepted Accounting Principles. The most rigorous level of external financial statement preparation. An essential component of the audit is the Opinion Letter.
Authorization of Borrowing
A resolution passed by a board of directors or trustees acknowledging and approving the incurrence of debt. Also known as a borrowing resolution. See officer’s certificate.
A report showing the financial condition – Assets, Liabilities, and Net Assets – of the organization at a particular moment in time. Also referred to as a Statement of Financial Position.
Final payment of a loan which is larger than the previous payments, arising when the amortization is longer than the maturity of the underlying note. See amortization.
A fraction of a percentage point, equal to one one-hundredth of a percent. Used to describe interest rates; i.e., 50 basis points is the same as ½%. See points.
Board Designated Funds
A condition placed by an organization’s board of directors on how an amount of money is to be used. A common type of board designation is for Operating Reserves. For accounting purposes, these funds are considered unrestricted because the condition was not specified by a donor.
A mechanism for monitoring that funds advanced under a line of credit bear some proportionality to either the asset being financed or the source of repayment.
A short-term loan with a specific repayment source.
Permission granted by a local government to build or renovate a specific structure at a particular site. More than one permit may be required, depending on the situation.
A capital improvement reserve fund. Money set aside to pay for facility upkeep, where the amounts can be large, the ultimate need a certainty, but where the exact timing is uncertain.
How an organization raises and spends money, or how an organization delivers and supports its activities through a cost structure and revenue strategy that comprises earned and contributed sources.
A document outlining the governance of and what activities a legal entity may or may not engage in.
The funding and financing available for an organization to achieve its mission over the long term. Capital is reflected in an the composition and distribution of Assets, Liabilities, and Net Assets.
A fundraising drive that takes place outside of (and in addition to) annual operating fundraising, usually to raise funds for a facility (or capital project), an endowment, and/or reserves.
Payment of money to acquire fixed assets, such as a building or equipment.
A facility or equipment upgrade (as distinguished from maintenance or repair) that will have a life of more than one year, and that adds to an organization’s asset base.
The nature, composition, and magnitude of the assets, liabilities, and net assets comprising the balance sheet. A well-balanced capital structure enables organizations to take risks, innovate, and pursue new opportunities.
The distribution, nature and magnitude of an organization’s assets, liabilities and net assets. Also known as capital structure.
Capitalizing an Asset
Recording the cost of land, a building or equipment as fixed assets rather than as an expense when purchased.
A case for support, written primarily for a capital campaign, that outlines an organization’s history, current status, future plans, including facility plans, and fundraising objectives.
Funds which can be quickly and easily converted to cash; those bank accounts, money market funds or other investments which mature within 90 days.
The receipt and disbursement of monies.
A system of financial recordkeeping in which transactions are recorded when cash is received or spent. The advantage over accrual-basis accounting is its simplicity.
Change of Net Assets
The net results of total income minus total expenses for a period of time, which may be positive or negative. Also referred to as a surplus or a deficit. Commonly called profit or loss in the for-profit sector.
Chart of Accounts
A list of all accounts used in accounting system, including assets, liabilities, income, and expenses.
An asset which is pledged to a lender until a loan is repaid. In case of default, the lender legally owns the right to obtain or sell the collateral to repay the loan.
A contribution for which the organization has received a formal notification from the donor that an award will be made at a future date.
A financial report that has been prepared by, but not reviewed or audited, by a Certified Public Accountant (CPA). The financial reports have not been tested or verified and the CPA states no opinion about the accuracy of the statements.
Conditional Promise to Give
A commitment by a donor to make a contribution to the organization if a specific requirement is met. The agreement becomes binding once the requirement is met.
A donation, gift or transfer of cash or other assets
Cash, investments, receivables, and other assets that can be expected to be available as cash within twelve months.
Current Grants and Pledges Receivables
Money owed to an organization within the upcoming twelve months for goods and services it has sold or that have been committed to the organization as a grant, donation or pledge.
Those liabilities due to be paid now or within the next twelve months.
Current Portion of Long-Term Debt
Amount of principal on long term debt due within one year. Interest is not included in this amount.
Days Cash on Hand
A calculation of the number of days that an organization could continue to pay its operating expenses with current cash balances. It serves as a simple measure of the short-term financial stability of an organization.
An amount owed to a person or organization for money borrowed. Common types are loan, promissory notes, bonds, or borrowed funds.
Income for which payment has been received before it has been earned. It is reflected as a liability on the Balance Sheet until it is earned and can be recognized as income in a future accounting period.
Expenses in excess of income; an operating loss or a negative change in Net assets.
The recognition, by recording an expense, of the decrease in value of a fixed assetover its expected physical or economic life. The value of land is not depreciated.
Those expenses which are specifically attributable to a program area or cost center. Costs may be exclusively for that purpose or may be allocated between several uses.
Income received for providing services or goods, rather than as a voluntary contribution.
An amount of assets owned by an organization that is invested with the intention to be held perpetuity. The income and increases in value of the investments are available as income for program use and organizational purposes. Endowment funds received from a donor are permanently restricted and cannot be re-directed for other purposes. Endowment funds that are created by internal policy, they are Board-designated, or Quasi-Endowments. Endowments are subject to multiple accounting and legal rules.
Environmental Audit Phase I
A report usually issued by an environmental engineering or other qualified entity to determine the risk or reality of environmental contamination of a real estate property.
Represents the difference between an asset’s market value and the amount of debt associated with that asset. Also refers to the amount a developer or owner invests in a project.
Represent the total cost of operating the organization, including payments made to employees and other parties, operating expenses, debt, principal payments, capital expenditures, non-cash expenses, fixed assets, and funds set aside for future use.
The acquisition of a building or other physical space through purchase or leasehold; a renovation; a construction project; a relocation; a change in number of sites; or an equipment purchase. Any project that involves a change in a facility.
Financial Standards Accounting Board. Independent board responsible for establishing and interpreting generally accepted accounting principles (GAAP). Financial Accounting Standards 116 and 117 govern the nonprofit sector.
A determination of the likelihood that a proposed idea, plan or project will fulfill certain economic and operational objectives. Often undertaken to predict the viability of a new venture, facility project or capital campaign.
A legal obligation to act in the best interest of another entity or person. In the nonprofit sector, members of the board of directors have a fiduciary duty to act in the best interest of the organization, including activities related to the funds and other assets owned by the nonprofit.
A written report that quantitatively describes the financial health of an organization. A complete financial statement includes a balance sheet, an income statement, a statement of cash flows, and often a statement of functional expenses.
The net worth of the physical items an organization owns (e.g., property, building, equipment, improvements), which cannot easily be converted to cash. Often called property & equipment (P&E).
A system of accounting based on separating information into groups which reflect organizational divisions or donor-imposed restrictions.
Expenses that are used for the purpose of soliciting donated funds and in-kind contributions to an organization. A type of functional expense that frequently reflects the use of allocations.
Accounting system tool for recording all transactions.
The set of norms and standards of nonprofit accounting practices established by the Financial Accounting Standards Board (FASB) to help ensure the accuracy and consistency of financial records and reports. Used for internal and external financial reporting, including audits.
Contributed assets given by an individual or another organization with no reciprocal receipt of services of goods. Sometimes are given with a legal restriction imposed upon its use.
A contribution made of goods or services rather than cash.
A financial report that summarizes income and expenses and resulting surplus or deficit for a given period of time. Also known in the nonprofit sector as the Statement of Activities.
Indirect expenses are expenses that cannot be traced back directly to a program, product, or service directly associated with a nonprofit’s mission-fulfillment.
One of the costs of using money, usually expressed as an annual percentage, that a lender charges a borrower for the use of the principal over time.
The system of practices, procedures and policies intended to safeguard the assets of the organization from fraud or error and ensure accurate recordkeeping.
The standard federal reporting requirement for nonprofit organization and private foundations. The majority of nonprofits are required to submit an annual information return to the Internal Revenue Service. The specific version is determined by the type of nonprofit, organization size, and activities.
IRS Determination Letter
A document issued by the Internal Revenue Service to a nonprofit organization confirming its status as exempt from paying federal income taxes and stating the type of exempt organization, for instance, 501(c)(3) and the date of that exemption.
Items owed by an organization or claims against its assets.
A legal claim against an asset which is used to secure a loan and which must be paid when the asset is sold. Liens can be structured in different ways.
A measure of how much cash and assets that can be easily converted to cash (such as short-term investments) an organization has available for use in the immediate or near future.
Long-Term Debt / Liabilities
An obligation to pay a loan or other obligation with a maturity or due date of more than one year.
Long-Term Grants & Pledges Receivable
Money owed to an organization in more than a year for goods and services it has sold or that have been committed to the organization as a grant, donation or pledge. The organization will not get the money for more than a year.
Management and General Expenses
Expenses that are used for the purpose of planning and managing the organization as a whole rather than for programs or fundraising. Expenses may include all or part of the cost of executive staff, finance, human resources, board of directors, and general promotion and communications. A type of functional expense that frequently reflects the use of allocation.
Months of Cash
The number of months the organization could operate with current cash reserves. The cash position at some point in time (usually at fiscal year end) divided by the average monthly operating expense before depreciation.
The difference between the organization’s total assets and its total liabilities on the balance sheet indicating the net financial worth for the organization. Net assets is the accumulation of the difference between cumulative income less cumulative expenses over the life of the organization. Divided into unrestricted, temporarily restricted, and permanently restricted net assets.
An NFF-coined term to describe the total grant amount minus the costs organizations incur to manage the grant itself (e.g., reporting requirements, proposal writing, and funder updates).
Revenue and expenses not directly related to the organization’s program or other main activities.
Debt that does not relate to the organization’s main business and program activities, or day-to-day operations (e.g. loans to finance fixed assets and buildings).
Revenue not directly related to an organization’s programs or activities, such as capital receipts and temporarily or permanently restricted revenue.
The amount an organization owes to others for loans.
The amount an organization is owed for loans made to others.
Items that relate to the organization’s main business or program activities. They may also be referred to as “above the line” activities (meaning they are included in the calculation of the operating surplus or deficit – the “bottom line”).
Debt to support the organization’s main business or program activities, and day-to-day operations (e.g. line of credit).
The regular costs of doing business. Excluded are one-time, extraordinary or capital items such as funds passed through to other agencies, losses from sale of property, realized/unrealized investment gains or payments of debt principal.
Funds set aside annually to be used to offset possible operating losses due to unexpectedly low revenue or high operating costs (a.k.a rainy-day reserve).
Funds received as unrestricted or released from temporary restriction to cover operating expenses.
The costs that cannot be identified with a program activity but are needed for the general administration of the organization. This expense is often distributed among programs based on a formula.
Funds received by an organization that must be spent on behalf of, or passed through, to a secondary recipient. Examples include re-granted funds and direct payments to beneficiaries.
Permanently Restricted Net Assets
Funds with donor-imposed stipulations that the principal not be spent, e.g., traditional endowments; some or all of the earnings are available for specific or general operations.
A formal commitment, generally in writing, to make a contribution of a specific amount.
The amount of money that is borrowed and that the borrower must pay back to the lender. The interest, or price of borrowing, is added to the principal.
Pro Forma Income and Expenses
Statement showing the projected annual income and operating expenses of an organization to reflect a future event such as completion of a project.
Profit or Loss Statement
See income statement or statement of activities.
Program Related Investment
Program-related investments (PRIs) are a type of impact investment, associated primarily with foundations, that support philanthropic efforts and are intended to result in the return of principal under the terms of the investment.
Program Service Revenue
Income earned from providing one or more program services. It may be paid by the direct user of the service or through a contract with a third party such as an insurance company or government agency.
Property and Equipment
The asset value of the physical items an organization owns such as buildings and improvements, equipment, and furniture that will be used for more than one year. Often called fixed assets.
Conversion of financial numbers into ratios, often used as a tool to evaluate financial trends and health of an organization.
Helps organizations recover from damaging financial shortfalls or restore an impaired capital base by: reducing debt, funding much-needed repairs to facilities/equipment, and/or reducing or restructuring debt and other obligations.
Release From Restrictions
The accounting transaction used to transfer temporarily restricted funds into an organization’s unrestricted accounts when the restriction has been satisfied (such as when a special project is initiated).
Request for Proposals
A request sent to prospective consultants or contractors, once the scope of the project is clearly defined, which includes everything requested in an RFQ, plus a proposal of how the consultant would approach the work and what fees would be involved.
Request for Qualifications
A request sent to prospective consultants or contractors asking for basic information about areas of expertise, references from former clients, services, methods and fee structure.
Revisions of an organization’s earlier financial statements. The need for restatements can result from fraud, misrepresentation or a simple clerical or calculation error.
Payments for services, donations from individuals, foundations and corporations, support and contract payments from government agencies, income from fundraising activities, and investments. NFF defines reliable revenue as distinct from capital.
A financial report as of a certain date, usually covering a twelve-month period put together and reviewed, but not audited, by a Certified Public Accountant (CPA).
Scope of Work
A detailed description of what work is to be done for a specific project.
Real estate or personal property used as collateral to back up a loan, which gives the lender tangible property that may be sold upon default to pay off the indebtedness.
Anyone with concern for or about an organization such as board members, trustees, subscribers, members, clients, staff, donors and former donors, foundations, corporations and volunteers.
Statement of Activities
One of the primary financial reports for an organization, reporting the income, expenses, and change in net assets for a period of time. See income statement.
Statement of Cash Flows
A financial report component summarizing the sources and uses of cash for a period of time. The statement of cash flows is a historical report and is different in form and use from a cash flow projections. See cash flow.
Income from voluntary contributions and grants (as distinct from revenue, or earned income).
Expenses during an accounting period. Surpluses can be measured before or after depreciation and non-operating activities. See deficit.
Help and advice provided on a specialized subject matter.
Temporarily Restricted Cash (Current)
Revenue with time or purpose restrictions that are set to be satisfied within twelve months, releasing the unrestricted revenue to the organization within the year.
Temporarily Restricted Cash (Non-Current)
Revenue that will not be released from time or purpose restrictions for organizational use for more than a year.
Temporarily Restricted Net Assets
Accumulated net assets with a donor-imposed time or purpose restriction that, once satisfied, become released.
The length of time that a loan is outstanding.
Any of several types of reports, including searches, commitments, and insurance policies, prepared by a title insurance company documenting the ownership history of a real estate property.
Unconditional Promise to Give
A pledge to make a contribution of cash or another asset without requiring the organization to meet any condition prior to receiving the contribution.
Process used to analyze the financial condition of the organization and its project (where applicable) in conjunction with the terms and conditions of a loan and the ability of a loan applicant to meet those terms and conditions.
Undesignated Net Assets
Unrestricted net assets less board-designated assets and net investments in plant and equipment. This balance represents net assets generally available to meet operating needs.
Unrestricted Liquid Net Assets
The estimated amount of unrestricted net assets NOT invested in P&E or board-designated reserves. Essentially this is the liquid amount of unrestricted net assets available to support operations. Also known as undesignated, unrestricted net assets.
Unrestricted Net Assets
Funds that have no external restriction as to use or purpose.
The amount of liquidity (unencumbered cash and near cash) an organization has on hand or accessible (e.g., through a line of credit).