The glossary of financial terms has been developed to give quick access to definitions of some of the most common terms and concepts used in not-for-profit sector finance. It is designed to better help you understand financial terms and concepts that you may come across as a treasurer or board member of a not-for-profit organisation.
Accounts payable is a list of all the amounts of money currently (within 12 months) owed by an organisation. Items often found in accounts payable include invoices for goods or services, utility bills and tax payments due.
Accounts receivable is a list of all the amounts of money currently (within 12 months) owed to an organisation. Items found in accounts receivable include money owed from the provision of products or services and money that has been committed to an organisation as a grant or donation.
Assets are things that an organisation owns. These include cash as well as things that can be converted into cash, such as vehicles, equipment and goods. See also Current assets and Intangible assets.
An audit is a thorough physical check of an organisation's financial records by an auditor or CPA. It ensures that the accounting has been carried out correctly and that the organisation is fulfilling its financial obligations.
A balance sheet is a financial statement that shows an organisation's current financial position. It includes assets and liabilities, and provides a snapshot of an organisation's net assets at the close of business on a certain day.
Capital expenditure is money spent on items that will last longer than one year, such as computers, furniture, office equipment, cars, land, and buildings.
In accounting terms, capital expenditure is treated differently from operating expenditure. In a budget, the cost of capital expenditure is spread over the expected life of the asset. Allocating the whole cost of a capital item to one year's accounts would give a distorted view of profit and loss, so a depreciation charge for that item is recorded each year instead.
Cash flow is the monitoring of the difference between cash going into an organisation and cash coming out.
Collateral is an asset or assets used by a borrower to guarantee a loan to a lender. If the borrower defaults on the loan, the lender has the legal right to seize the collateral.
Current assets are any items or money that an organisation owns and is planning to turn over within the next 12 months. They include cash in the petty cash tin, cash in the bank, inventory (items in the gift shop, for example), and accounts receivable (money owed to the organisation).
Current liabilities are any money that an organisation owes and is required to pay back within the next 12 months. They include loan repayments and money owed from the purchase of goods and services.
Depreciation is a non-cash expense associated with a reduction in the value of an asset, often as a result of wear and tear, over a period of time.
Double-entry bookkeeping involves recording every transaction twice, as a credit to one account and a debit to another. It makes catching mistakes or misappropriations easier.
Equity is your organisation's net worth and is calculated by deducting your liabilities from you assets. It is what your organisation would be worth if you cashed up today. It includes accumulated funds and any reserves you've put aside as a backstop.
A financial statement is a written report of an organisation's financial activities. The main types of financial statements are balance sheets, income statements, cash flow statements and profit and loss statements.
Intangibles are items that don't exist physically, such as goodwill and brand value.
A liability is a financial sum owed by an organisation or an amount borrowed. It includes accounts payable, accrued salaries and lines of credit.
An organisation's net assets are the total value of assets minus the total value of liabilities.
Anything you're not planning to convert rapidly, or that you couldn't turn into cash in a hurry, is non-current - buildings, equipment, cars or trucks, for example.
Operating expenditure is money you use to run your organisation from day to day and includes overheads, salaries, supplier bills and maintenance. (Compare: Capital expenditure)
In the accounts, operating expenditure is treated differently from capital expenditure. Operating costs just go in as they happen, whereas capital expenditure is spread over a year.
Restricted funds or assets
Restricted funds are amounts of money that an organisation is not free to spend as it wishes. A bequest "to be spent on providing care for little children", for example, can't be spent on programs for adults, no matter how much the adults need it. It is necessary to isolate these funds when it comes to keeping the accounts.
Revenue is the total income your organisation receives. It includes money from membership fees, grants, donations, the sale of products and services, special events, consulting fees and sponsorships.