Nonprofit Accounting Definitions

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Accounting definitions and accounting terms:

account
A record in the general ledger that is used to collect and store similar information. For example, a Nonprofit organization will have a Cash account in which every transaction involving cash is recorded.

accounting cycle
A term that describes the steps when processing transactions (analyzing, journalizing, posting, preparing trial balances, adjusting, preparing financial statements) in a manual accounting system. Today many of the steps occur simultaneously when using accounting software.

accounting equation
Assets = Liabilities + Net Assets. Because of double-entry accounting this equation should be in balance at all times. The accounting equation is expressed in the financial statement known as the Statement of Financial Position. To learn more, see this page on basic accounting concepts.

assets
Things that are resources owned by a nonprofit organization and which have future economic value that can be measured and can be expressed in monetary value. Examples include cash, investments, supplies, land, buildings, equipment, and vehicles.

bank reconciliation
The process of comparing the amounts in the Cash account in the general ledger to the amounts appearing on the bank statement. The objective is to be certain that there is consistency between the amounts and that the nonprofit organization's amounts are accurate and complete.

chart of accounts
A listing of the accounts available in the accounting system in which to record entries. The chart of accounts consists of statement of financial position accounts (assets, liabilities, net assets) and statement of activities accounts (donations and expenses). The chart of accounts can be expanded and tailored to reflect the operations of the nonprofit organization.

comparative financial statements
Financial statements that show more than the current year's amounts. For example, it is generally accepted that a nonprofit’s statement of activities will show the most recent three years of results. This provides the reader with two years of past amounts as a frame of reference for the most recent year. Comparative nonprofit's statements of financial position typically show the most recent two years. See this page on understanding financial statements.

contributions
The revenue classification used by nonprofit organizations to account for the amounts received as donations. It is also an expense classification for the donations made to another nonprofit organization.

Contributions may be in the form of cash, securities, other property, as well as unconditional promises to give assets at a later date.

Contributions made by a donor without conditions attached are referred to as unrestricted contributions. Contributions with donor-imposed restrictions are either temporarily restricted or permanently restricted. You can learn more on this page about contributions.

credit (as in debit and credit)
To enter an amount on the right side of an account. Normal entries to revenue accounts are credits. Liabilities normally have credit balances. To learn more, see this page on Debits and Credits.

current assets
Cash and other resources that are expected to turn to cash or to be used up within one year of the statements of financial position date.

Current assets are presented in the order of liquidity, i.e., cash, temporary investments, accounts receivable, supplies, prepaid insurance.

current liabilities
Obligations due within one year of the statements of financial position date. Another condition is that the item will use cash or it will create another current liability.

Note: Reference Source for this article on accounting definitions:

AccountingCoach Pro’s Accounting Dictionary. ( I reworded some of the accounting definitions to reflect nonprofit accounting more accurately.)

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