Nonprofit Bookkeeping and Accounting Terms That You Should Know

Posted on 21/09/2022

Tables of Content: Nonprofit Bookkeeping and Accounting Terms

  1. Accounts Receivable
  2. Accrual-Basis Accounting
  3. Amortization
  4. Accounts Payable
  5. Audit
  6. Bank Reconciliation
  7. Balance Sheet (Financial Health)
  8. Chart of Accounts
  9. Cash-Basis Accounting
  10. Encoding
  11. Current Liabilities
  12. Donor Advised Fund
  13. Depreciation
  14. Deferred Revenue
  15. Forecast
  16. Functional Expense Report
  17. Form 990
  18. Fixed Assets
  19. Grants
  20. In-Kind Contribution
  21. Income statement (Statement of Activities)
  22. Indirect Costs
  23. Journal Entry
  24. Liquidity
  25. Liability
  26. Management Letter
  27. Net Assets
  28. Prepaid Expense
  29. Pledge
  30. Release from Restriction
  31. Statement of Cashflows
  32. Unrealized Gain or Loss
  33. Working Capital Ratio

 

Accounts Receivable:

Accounts Receivable (AR) is the amount owed to an organization for goods or services provided or used by a customer without payment. Examples of this are donations and receivables from donations.

Accrual-Basis Accounting:

A method of accounting that recognizes revenues and expenses when incurred and when payments are received or made.

Amortization:

Paying off a debt in equal installments over a period of time. The term is used for two separate processes: loan write-off and asset write-off.

Accounts Payable:

Accounts Payable (AP) is the short-term liability an organization has to a supplier for products received before payment is made.

Audit:

Occurs when an external auditor or accounting firm examines a nonprofit’s financial statements, records, transactions, accounting practices, and internal controls.

Bank Reconciliation:

Bank reconciliation is the process of reconciling a company’s on-book bank account balances with the balances reported by financial institutions in their most recent bank statements. You should check the difference between the two numbers and correct them if necessary.

Balance Sheet (Financial Health):

A nonprofit balance sheet (also known as a balance sheet) is essentially a report that gives a snapshot of the financial health of an organization. Measure a nonprofit’s assets, liabilities, and net worth at a given point in time in one document.

Chart of Accounts:

The chart of accounts is the backbone of all accounting procedures. Accounting is based on the reports and statements an organization uses to track its finances. The COA lists these various accounts and ledgers to track all financial transactions and items.

Cash-Basis Accounting:

A system of accounting in which income and costs are recorded at the time that money is received or spent.

Encoding:

The process of organizing transactions by associating numbers with dates. Accounting codes are not universal, as each organization can create its own accounting coding system to suit its own organizational needs. Current Assets – Current assets are items on an organization’s balance sheet that are cash, cash equivalents, or anything that can be converted into cash within one year.
Examples include money, short-term investments, paid expenses, assets, and inventory.

Current Liabilities:

An organization’s debts or dues are expected to be paid to creditors within one year, such as accruals.

Donor Advised :

Fund or DAF is a donation account set up with a public charity. This allows donors to make charitable donations, receive instant tax credits, and then recommend grants from the foundation.

Depreciation:

An accounting policy is used to allocate the cost of a tangible or physical asset over its useful life. The amount of asset value used is specified by depreciation. This is usually performed on fixed assets. Direct Costs – a price that can be plainly bound to the production of specific goods or services.

Deferred Revenue:

Liability on an organization’s balance sheet represents advance payments from customers for goods or services that have not yet been delivered.

Forecast:

An approximation of an organization’s future financial health. It briefs on important financial decisions like funding of capital projects, employment or seeking funding as well. Organizations use important information from financial predictions on their balance statements and other disclosures.

Functional Expense Report:

A financial report is used by non-profit organizations to show the functional classification of costs in addition to the natural classification of costs. Functional expense classification further divides natural expenditures into three areas: programmatic, administrative and general, and funding.

Form 990:

The Form 990 series is a set of annual compliance forms filed with the IRS and some states. Tax-exempt organizations must file a 990 annually to maintain their status. The IRS, donors, and watchdogs use these forms to help organizations maintain credibility and integrity.

Fixed Assets:

Those assets are acquired for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment.

Grants:

A nonprofit grant, which is also known as a fundraising grant is a monetary donation given to an organization. Grants are usually given by foundations, corporations,or agencies by the government.

In-Kind Contribution:

An in-kind donation is a charity given to nonprofit organizations. These non-traditional donations involve the transfer of assets, usually goods or services, and can be donated by individuals, organizations, or businesses.

Income statement (Statement of Activities):

A report showing an organization’s revenue and expenses for a certain duration of time. It also classifies nonprofit’s revenue and expenses.

Indirect Costs:

Indirect costs are usually just overhead expenses like rent and utilities. It may also include general and administrative expenses.

Journal Entry:

A method used to record a business transaction or regulate balances.

Liquidity:

The extent to which a security can be bought or sold quickly in the market.

Liability:

Liabilities can be money or anything at all that a person or an organization owes. They are balanced over time by the transfer of economic benefits such as money, goods, or services.

Management Letter:

Aformal letter prepared by the company’s external auditor that is signed by the company’s senior management. This letter certifies the accuracy of the financial statements submitted by the company to the auditor for analysis.

Net Assets:

All the assets of the organization without including current liabilities. It is otherwise called net worth.

Prepaid Expense:

Future expenditure that is paid in advance. After the asset’s benefits have been realized over time, the amount is recognized as an expense.

Pledge:

A donor commits to donating a specified amount to an organization over a specified period of time. Donors can make conditional commitments, that is, Payments will be made unconditionally or only if the conditions are met.

Release from Restriction:

The process of shifting funds from the “with donor restriction” classification to the “without donor restriction” category.

Statement of Cashflows:

A statement of cash flow is a budgeting report which shows how funds come and go in the organization routinely. These parts include the cash flows from operating activities, investing activities, and budgeting activities.

Unrealized Gain or Loss -Unrealized gains are boosts in the value of an asset or investment that the investor has not sold like an Open Stock Position. Unrealized losses are impairments of current investments.  Any investment gain or loss will be realized upon sale.

Working Capital Ratio – Often used by both commercial organizations and nonprofit bookkeeping & accounting organizations to estimate the momentary financial health of the organization. It can also be called as “current ratio”.

 

 

Topics: Non Profit Organization