Accounting Glossary

This Accounting Glossary is intended to support understanding of terms used in Accounting. In some cases, definitions for key terms are accompanied by examples. Note that examples are not comprehensive; not all examples will be relevant, applicable, or appropriate to all organizations.  Nonprofit organizations should always follow the guidance of their in-house accountants.

Accounts

• Bank Account - A bank account indicates that the account needs to be reconciled, issues payments, and accepts deposits.
• Category - Categories include assets, liabilities, net assets, revenue, and expenses.
  • Examples:
    • 1000 - Assets
    • 2000 - Liabilities
    • 3000 - Net Assets
    • 4000/5000/6000 - Revenue
    • 7000/8000/9000 - Expenses
• Payroll Account - A payroll account indicates the account should be grouped as part of payroll and related expenses on the statement of functional expense.
• Sub Accounts - A sub account is a sub-classification for an account and a way to link accounts by a common purpose for reporting. Sub accounts can be ‘rolled up’ into the parent account on reports.
  • Example: In a Supplies account, sub accounts might include office supplies, program supplies, or custodial supplies.
  • Example: A chart of accounts might include the revenue item sponsorships with sub accounts for different types of sponsorships under the account.

Services

• Parent Service - A Parent Service is a way to group program services to create a hierarchy.
  
  • Example: A Parent Service such as an emergency service might include a foodbank and homeless fund.
• Program Services - A Program Service is a way to group revenue and expenses according to the nonprofit’s mission.  In the system, a user will be able to create a budget and/or filter financial reports based on a Program Service.
  • Example: Program services examples might include health services, education, or senior supports.
• Support Services - A Support Service is a way to group revenue and expenses that support management and general (administrative) and fund development needed to support the nonprofit.  In the system, a user will be able to create a budget and/or filter financial reports based on a Supporting Service.
  
  • Example: Fees associated with raising funds for a capital campaign might be listed under fund development. Fees raised through membership revenue might be categorized under general (administrative.)

Ledger

• Close Books - Close books is an accounting procedure that happens at the end of each month or designated period and at the end of each year. Once books are closed for a period, additional entries are not allowed in that period without opening the books. 
• Journal Entry - A journal entry is used to record a business transaction in the accounting records of an organization.
  • Example: An adjusting entry and a reverse entry are two types of journal entries.
• Ledger - A ledger is an accounting system tool for recording all transactions. A general ledger is the record-keeping system for an organization's financial data, with debit and credit account records validated by a trial balance.
• Open Books - Open books is an accounting procedure that allows transactions to be entered into a previously closed period.

Revenue

• Category - The category selected within a Revenue entry broadly defines the funding stream and how it should be categorized in the system.
• Donation - A donation is a category within Revenue for funding that is a charitable contribution. Acknowledgements can be created for entries recorded as a donation.
• In-Kind Donation - An in-kind donation is a category within Revenue for a donation of goods or services. Acknowledgements can be created for entries recorded as an in-kind donation.
  • Example: An electrician who provides services and materials but does not charge the organization is an example of an in-kind donation.
• Invoice - A document which identifies a revenue transaction for which a client owes payment.
• Other - Other is a category within Revenue that is not categorized in one of the other categories.
• Opportunity -An Opportunity is a way to classify information for reporting purposes. In the system, the Opportunities can be defined in a variety of ways.
  • Example: Opportunities might include grants, campaigns, a direct mail solicitation, or an event.
• Pledge - A pledge is a category within Revenue for a monetary donation that has been pledged to be given but has not been received. Pledges are important for capital campaigns.
  • Example: An organization is raising funds to purchase a building over an extended period of years. A donor pledges $250,000 over a period of 5 years. Each year the donor pays the pledge until the total $250,000 is received. Monies pledged for a specific purpose are often referred to as restricted, meaning the money can only be utilized for the designated purpose directed by the donor.
• Program Fees - A program fee is a category within Revenue for earned revenue that is related to the nonprofit’s programs and/or membership fees.
• Statement - A document which itemizes the unpaid invoices that have not yet been fully paid.

Expenses

• Allocation Table - An allocation table is a user-defined table that allows an expense to be allocated across program services.
  • Example: Allocation tables might include the percentage of expenses for utilities and rent based on a square footage study.
• Expenses - Expenses are the costs incurred for a nonprofit to perform their mission.
  • Example: Payroll, office supplies, rent, and program costs are example expenses.
• Payable Account - A payable account is the liability account for unpaid expenses.
  • Example: Payable accounts might include loan payments, accrued payroll benefits for employees (vacation payouts), or deferred revenue (fees received for services not provided yet).

Banking

• The Banking tab in the system includes Deposits, Payments, and Reconcile pages.

Deposits

• Deposit Account - A deposit account is the bank account into which revenue entries are deposited.
  • Example: An organization might have several deposit accounts including an operating account, a capital building account, or an investment account.
• Undeposited Funds - Undeposited funds are revenue entries for items that the nonprofit needs to deposit to a bank account.

Payments

• Payment Account - A payment account is a bank account that allows you to make payment transactions.
• Payment Method - A payment method is a way to pay for a product or service. 
  
  • Example: Checks, cash, and electronic bank transfers are all different payment methods.
• Unpaid Expenses - Unpaid expenses are the money owed to vendors for expenses incurred, but not yet paid.  Unpaid expenses are also referred to as accounts payable.

 Reconcile

• Bank Balance - A bank balance is used for a reconciliation.  Generally, this is the balance listed on a bank statement for an identified date.
• Cleared Balance - Cleared balance is the cash balance in an account that can be immediately withdrawn or used in financial transactions.
• Cleared Deposits - Cleared deposits are deposits that have been made and have cleared the bank within the date range of the reconciliation.
• Cleared Payments - Cleared payments are payments that have been issued and have cleared the bank within the date of the reconciliation.
• Difference - Difference refers to the difference between the bank balance and general ledger balance during the reconciliation process. In order for the bank account to be reconciled, the balance should be zero.
• Initial Uncleared Items - Initial uncleared items are uncleared payments or deposits for an initial reconciliation if the account was reconciled in a prior system.
• Reconcile - Reconciliation is an accounting process that balances a nonprofit’s bank account to its general ledger.

Financials

• Statement of Activities - A statement of activities reports the income, expenses, and change in net assets for a period of time. 
• Statement of Financial Position - A statement of financial position reports the assets, liabilities, and net assets as of a specific date. A statement of financial position is also referred to as a balance sheet.
• Statement of Functional Expense - A statement of functional expense is a statement by functional category, further delineated by the type of expense: payroll, professional fees, occupancy, etc. A statement of functional expense is required for IRS Form 990 and audited financial statements. 
• Trial Balance Report - A trial balance report is a bookkeeping worksheet in which the balance of all transactions for each account is compiled into debit and credit columns. 

Budgets

• The budget tab in the system allows organizations to create budgets for individual programs or supporting services by fiscal year.  Budgets can be consolidated and revised as needed.

Profiles

• Profiles capture the contact information and relational framework between constituents. There are three types of profiles: individual, organization, and household.