141 Nonprofit Accounting Terms You Need to Know

In fact, sometimes recording income as cash is received is perfectly appropriate (and less accounting hassle). Let’s dive into a few of the most common pain points nonprofits encounter with revenue recognition and discuss how to work through them. Conditional revenue refers to situations in which the contributor will only provide funding if specific conditions are met, either internally or externally.

Cost

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Non-Operating Activities

The FASB Accounting Standards Codification Topic 958 requires important additional disclosures regarding liquidity, restrictions, etc. for creditors, donors, and others. If your nonprofit has the financial flexibility to budget for a revenue surplus, do so! When your predicted income exceeds your projected expenses, you’ll be more prepared to course correct if you incur unexpected costs or some revenue sources fall short of your goals.

Revenue With Restrictions vs. Unrestricted Revenue

What matters is the overall picture of your organization’s financial health and impact. For example, New York and California have detailed reporting requirements, while other states might be more relaxed. Small nonprofits might qualify for simpler forms (990-EZ or 990-N), but the basic requirements remain unchanged. This public accessibility means your financial management needs to be spotless. These reports need to show how they helped advance the organization’s mission. For instance, when discussing individual donations, you may explain how the funds raised allowed your disaster relief organization to help families like the Smiths, who lost their home in a recent forest fire.

Appraisals can be “as is” or “as improved,” which includes the value created by future capital expenditures. The action or process of gradually writing off the initial cost of an asset. Money owed by an organization to its suppliers and/or vendors for goods or services purchased. Unrealized Gain or Loss – An unrealized gain is an increase in the value of an asset or investment that an investor has not sold, such as an open stock position.

• A nonprofit audit is a comprehensive review of an organization’s records, reports, transactions, policies, and procedures.
• Your IRS Form 990 is the annual tax form that your nonprofit accounting team submits to maintain your tax-exempt status with the federal government.
• Money set aside to pay for repair and replacement, where the amounts can be large, the ultimate need a certainty, but where the exact timing is uncertain.
• 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.
• The term financial statement may be used to describe the statement of activities alone, which does not provide a complete picture of an organization’s financial health/situation.

Peer-To-Peer Fundraising

The term may also refer to a member of a governing board or https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ to the “directors” in a corporate trust. SYBUNT is an acronym for donors who gave “Some Year But Unfortunately Not This” (year). Depending on how long it’s been since they gave and how often, these folks can be good prospects to reach out to during your year-end appeals.

• If the borrower defaults under the terms of the financing documents, the lender may have rights to take the collateral in order to get repaid.
• Funds received by an organization that must be spent on behalf of, or passed through, to a secondary recipient.
• Donors who might not be able to give a large one-time gift are often willing to sign up for monthly giving, ultimately donating more over time than they would have otherwise.
• They include anything you pay for, from rent to payroll to purchasing supplies.
• A capital campaign allows donors to pledge gifts to be paid over a period of time, often years.
• Nonprofit cash flow statements will refer to “change in net assets” instead of “net income,” and will sometimes list cash flows that are restricted to certain uses.
• Nonprofits should track revenues and expenses for multiple program service areas and product lines.

Nonprofit Audit Preparation Checklist

• An estimate of average annual percentage growth over a specified period of time.
• PRIs come in many shapes and sizes, depending on what mission and financial goals the foundation is aiming to achieve.
• For example, person A gives property in trust, with person A as trustee, to pay income to person B for life, and then to give property over to person C, free and clear.
• This statement allows you to determine how much money you have available to pay your expenses.
• Since your budget is your guiding document, you’ll want to revisit it frequently.
• The statement of functional expense is especially helpful when it comes time to file your nonprofit’s annual Form 990, which we’ll cover later on.

Journal Entry – a method of recording a business transaction or adjusting balances. The amount of liquidity (unencumbered cash and near cash) an organization has on hand or accessible (e.g., through a line of credit). 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. Conversion of financial numbers into ratios, often used as a tool to evaluate financial trends and health of an organization. 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.