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Intro to Financial Management for the Arts Midterm Vocab
Terms in this set (38)
Money owed by an organization to its suppliers and/or vendors for goods or services purchased.
Money owed to an organization for goods and services it has sold or that has been committed to it as a grant or donation. Also called grants receivable.
Accrued Expenses 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.
The total amount the value of fixed assets has decreased to date due to general wear and tear or obsolescence.
An item of current or future economic benefit to an organization. Examples include: cash, short-term investments, accounts receivable, grants receivable, inventories, prepaid expenses, buildings, furniture, equipment, vehicles, and long-term investments.
Statement showing an organization's financial position (assets, liabilities and net assets) at the close of business on a particular date. Also known as statement of financial position. (This statement changes daily.)
an estimate of income and expenditure for a set period of time; a financial plan.
A document outlining the governance of and what activities a legal entity may or may not engage in, including defining the officers, outlining the board composition and terms, the frequency of board meetings, the authority to enter into contracts for borrowing money and other purposes, and the number of signatures required to bind the entity legally.
The receipt and disbursement of monies; a document that tracks the flow of cash for the organization.
Change in Net Assets
Net assets are calculated by taking total revenue (including restricted and non-operating) less total expenses (including non-operating). The change in total net assets is an overall representation of a "bottom line."
Revenue or income received from individual, foundation, corporate, or government donations with no products or services provided by the organization in direct exchange for the funds. See earned revenue/income.
Items that generally will be turned into cash, sold, or consumed within one year.
Obligations that will usually be repaid within one year
Payment received from a client for a transaction that has not yet occurred (e.g., subscription purchase for performances held on future dates). This situation creates an obligation, and thus a liability, for the organization to provide goods or services in the future. (Note: Financial Accounting Standards 116 and 117 reduced substantially the instances in which nonprofits should use such categorization by introducing the concept of temporarily restricted net assets.)
The excess of expenses over revenue during an accounting period. Deficits can be measured before or after depreciation and non-operating activities. See surplus.
A non-cash expense associated with reducing a fixed asset's book value due to general wear and tear over its defined accounting or useful life. Depreciation is only an approximation of the amount needed to replace fixed assets.
Direct expenses are expenses that can be traced back directly to a program, product, or service directly associated with a nonprofit's mission-fulfillment. They include such items as: program staff and systems, materials required to deliver specific services, and travel costs required to deliver services
Revenue or income received by an organization in exchange for its products or services, e.g., tuition or performance-based government contracts. See contributed revenue/income.
Also called investment reserves. Typically represents donated capital that is kept intact (and grown) to generate investment income. While the corpus of an endowment is typically permanently restricted, unrestricted investment reserves (sometimes called board-designated reserves) can serve the same function while providing leadership with flexible use. NFF encourages nonprofits to prioritize raising flexible forms of capital since endowments need to be large to generate adequate annual income and may compete with other fundraising efforts.
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. In for-profit accounting, refers to the difference between total assets and total liabilities and may be called "owners' equity."
Represent the total cost of operating the organization, including payments made to employees and other parties, including operating expenses, debt, principal payments, capital expenditures, non-cash expenses, fixed assets, and funds set aside each year for future use. Mission fulfillment over the long-term depends on covering the direct costs of delivering programs and the indirect costs that support effective program delivery. These indirect expenses include such items as: fundraising staff and systems, management salaries, occupancy and other infrastructure. There is no "right" ratio of direct to indirect costs - the right expense mix is the one that leads to measurable mission outcomes. Indeed, growing organizations often see indirect costs rise as they build their infrastructure ahead of new program delivery.
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. Financial statements are usually compiled on a quarterly and annual basis. The term financial statement is commonly used to describe the statement of activities alone, which does not provide a complete picture of an organization's financial health/situation.
Generally Accepted Accounting Principles. A widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board.
Non-cash items of value, such as specialized volunteer labor, donated goods or professional services. Specific accounting rules govern the recognition of in-kind revenue and expenses. In-kind expenses typically equal in-kind revenue on the income statement.
A summary of the revenue and expenses of an organization during an accounting period. Also known as statement of activities or profit and loss statement.
Indirect expenses are expenses that cannot be traced back directly to a program, product, or service directly associated with a nonprofit's mission-fulfillment. They include such items as: fundraising staff and systems, management salaries, occupancy and other infrastructure. There is no "right" ratio of direct to indirect costs - the right expense mix is the one that leads to measurable mission outcomes. Indeed, growing organizations often see indirect costs rise as they build their infrastructure ahead of new program delivery. An organization's full costs typically exceed the combination of direct and indirect expenses. Full costs include additional investments to strengthen the balance sheet (also known as the Statement of Position). For example, nonprofits that have facilities (or other fixed assets) to maintain and debt (or other liabilities) to pay down need to raise revenue in excess of expenses to support these investments.
Items owed by an organization or claims against its assets. Examples include: accounts payable, accrued salaries and benefits, accrued payroll taxes, deferred revenue, lines of credit, construction loans, current portion of long-term debt, short-term notes payable, and long-term debt.
The difference between total assets and total liabilities, effectively net worth. Net assets are categorized as unrestricted, temporarily restricted, or permanently restricted.
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).
Items an organization pays for in advance of their being due. Examples include insurance premiums and rent that may be paid for a twelve-month period at the beginning of the year.
Money set aside to pay for future anticipated expenses. Reserves can be established for many purposes, including: emergencies/rainy days, capital improvement and building replacement needs, future investments, and general operations.
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. It is an estimate of the amounts of earned and contributed revenue with a track record of recurrence. In the case of contributed support, reliable revenue typically requires a fully built development capacity with a history of bringing in institutional and individual support year after year.
Statement of Activities
Summary of the revenue and expenses of an organization during an accounting period. Also known as income statement or profit and loss statement.
Statement of Cash Flows
Summary of the sources and uses of cash that reconciles cash at the beginning of the year with cash at the end of the year, organized into three categories: cash flows from operating activities, cash flows from financing activities, and cash flows from investing activities. See cash flow.
Statement of Financial Position
See balance sheet
Temporarily Restricted Net Assets
Accumulated net assets with a donor-imposed time or purpose restriction that, once satisfied, become released.
Unrestricted Net Assets
Funds that have no external restriction as to use or purpose.
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