Does it sometimes seem like you and your accountant are speaking different languages? The terminology of nonprofit accounting can get confusing, especially if you’re one of the 21% of nonprofit finance professionals with no formal training in accounting.
To help get everyone on the same page, we’ve collected a glossary of frequently used accounting terms below. If there’s anything we missed on this list, don’t be shy – give us a shout and we’ll help answer your nonprofit accounting questions!
Nonprofit Accounting Terms and Definitions
Receivables
The amount owed to your organization for invoices or pledges that have not been paid yet.
Payables
The amount you owe to others for bills that you haven’t paid yet.
Assets
What your organization owns, or what you are owed; includes receivables, property and equipment, vehicles.
Liabilities
What your organization owes to others; includes payables, credit card balances, mortgages, payroll taxes.
Net Assets
The difference between assets and liabilities; the nonprofit version of equity or net worth.
Statement of Financial Position
A report that shows an organization’s assets, liabilities, and net assets; the nonprofit version of a balance sheet.
Statement of Activities
A report that shows an organization’s revenue, expenses, and change in net assets; the nonprofit version of an income statement or profit & loss Statement (P&L).
Capitalization
Treating the purchase of a long-lived piece of property or equipment (like a new computer or delivery van) as an asset, rather than an expense. Your organization’s capitalization threshold defines the price at which a purchase is treated as an asset.
Restricted/Unrestricted
Classifications for contributions; donors may set limits on how their gift can be used, or they might allow the nonprofit to use the funds however they wish.
Functional Expenses
A way of organizing nonprofit expenses; classifications include Program Expenses (like facility fees for an after-school sports group), Fundraising Expenses (like decorating for a scholarship auction) and General/Management Expenses (like janitorial services for the office).
Accrual-Basis Accounting
An accounting method that records revenue and expenses when they are incurred; does not matter when the cash is paid out.
Cash-Basis Accounting
An accounting method that records revenue and expenses when they are paid; does not matter when the work is performed.
Deferred Revenue
Money that you have received but not yet earned; for example, advance registration fees for a workshop that has not taken place yet.
Prepaid Expenses
Money that you have spent for a product/service that you have not yet received; for example, an annual software subscription fee or a deposit on next year’s conference venue.
Unconditional Pledge
A clear and enforceable promise from a donor to give a specific amount of money at a future time; recorded as revenue at the time the pledge is made.
Conditional Pledge
A clear and enforceable promise from a donor to give money if certain conditions are met, such as hitting a fundraising goal; not recorded as revenue until the condition is met.
Intention To Give
Unenforceable or non-binding plans of a donor to give money in the future; not recorded as revenue, but may be helpful to keep track of for budgeting purposes.
Unrelated Business Income
Income resulting from a regular business activity that is not strictly related to the purpose of the organization, such as an online bookstore; nonprofit organizations must pay tax on this income, just like for-profit businesses.
GAAP
Generally Accepted Accounting Principles; a set of standardized guidelines for accounting, as established by the Financial Accounting Standards Board (FASB).