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- 1. © Community Resource Center – Permission granted for internal use within participant organizations only. Nonprofit Financial Leadership: How to be a Financial Leader Presented by: Maria Fabula President and CEO fabula@crcamerica.org
- 2. 1 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Financial Leadership: 1. Ensure Accuracy: Making sure that decision makers have timely and accurate financial data _______________________________________ _______________________________________ _______________________________________ _______________________________________ 2. Assess: Using financial data to assess the financial condition of your activities and overall business _______________________________________ _______________________________________ _______________________________________ _______________________________________ 3. Planning: Set meaningful financial goals and plan how to achieve them _______________________________________ _______________________________________ _______________________________________ _______________________________________ 4. Communicating: Share progress on these goals with your staff, board and external stakeholders _______________________________________ _______________________________________ _______________________________________ _______________________________________
- 3. 2 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Partners in Achieving a Mission: Based on our discussion on “Managing Roles and Responsibilities,” what are some next steps you might utilize for your own nonprofit? __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________
- 4. 3 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Board of Directors’ Responsibilities: Reviews and approves the annual budget Reviews annual and periodic financial statements and information Reviews Executive Director’s performance annually and establishes the salary Two members will be appointed by board to be authorized signers on bank accounts Reviews and approves all contracts over ($00,000) Reviews and approves all non-budgeted expenditures over ($00,000) Reviews and advises staff on internal controls and accounting policies and procedures Determines whether the organization should have an audit and, if so, chooses and contracts with the auditor Executive Director’s Responsibilities: Reviews and approves all financial reports including cash flow projections Develops an organization’s budget annually Reviews and signs all issued checks and/or approves check signing procedures Reviews and approves all contracts under ($00,000) Approves inter-account bank transfers Is on-site signatory for all bank accounts Opens all bank statements, reviews for any irregularities, and reviews completed monthly bank reconciliations Oversees the adherence to all internal controls
- 5. 4 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org What is Fiduciary Responsibility? Legal and ethical duties to an organization as governed by law. Demonstrated through three duties of a nonprofit board: • Duty of Care - Exercising their responsibility in good faith and with diligence, attention, care, and skill • Duty of Loyalty - Placing the interests of the organization before his or her private interests • Duty of Obedience - Ensuring that the board’s actions are faithful to the organization’s mission. Monitors and manages all expenses to ensure most effective use of assets Financial Staff Responsibilities: Overall responsibility for data entry into accounting system and integrity of accounting system data Processes invoices and prepares checks for signature Makes bank deposits Processes payroll and maintains personnel files Maintains general ledger Prepares monthly and year-end financial reports Reconciles all bank accounts Mails vendor checks Manages Accounts Receivable Monitors program budgets Reviews and manages cash flow Assists Executive Director with the development of annual and program budgets Reviews, revises, and maintains internal accounting controls and procedures Initiates donor thank you letter acknowledgements
- 6. 5 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org NOTES______________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ _________________________________________ Financial Best Practices to Ensure Accuracy Treatment Of Restricted Contributions Functional Classification Of Expenses Employee Time Tracking Allocation of Common Costs Accrual Basis Accounting
- 7. 6 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Types of Contributions: • Permanently restricted = endowment, never spent • Temporarily restricted = determined by donor restriction (grant budget), released when activity or time completed • Unrestricted = can be spent on any activity or time period NOTES_____________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________
- 8. 7 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Sample: Statement of Financial Position
- 9. 8 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org
- 10. 9 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Employee Time Tracking: • TIME SHEETS! • Periodic or daily, online or on paper, core activities or specific duties May-08 ADMI N MRK FR LDR CDS CNSL T TRN RPD INCL CGG NP CONS NP TRN Name Dept TOTA L 110 111 112 210 310 410 411 412 413 510 610 611 Staff Name 110 100% 0.76 0.00 0.00 0.00 0.00 0.24 0.00 0.00 0.00 0.00 0.00 0.00 Staff Name 110 100% 0.47 0.00 0.00 0.00 0.12 0.06 0.00 0.36 0.00 0.00 0.00 0.00 Staff Name 110 100% 0.64 0.00 0.00 0.04 0.03 0.04 0.10 0.00 0.05 0.05 0.03 0.02 Staff Name 110 100% 0.95 0.00 0.00 0.00 0.03 0.00 0.00 0.00 0.00 0.02 0.00 0.00 Staff Name 110 100% 0.94 0.00 0.00 0.02 0.00 0.00 0.00 0.01 0.00 0.01 0.02 0.01 Staff Name 210 100% 0.01 0.03 0.00 0.94 0.00 0.00 0.02 0.00 0.00 0.00 0.00 0.00 Staff Name 310 100% 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Staff Name 310 100% 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Staff Name 410 100% 0.01 0.00 0.00 0.00 0.02 0.93 0.03 0.01 0.00 0.00 0.00 0.00 Staff Name 410 100% 0.00 0.00 0.00 0.00 0.02 0.98 0.00 0.00 0.00 0.00 0.00 0.00 Staff Name 410 100% 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 Staff Name 411 100% 0.00 0.00 0.00 0.05 0.00 0.41 0.54 0.00 0.00 0.00 0.00 0.00 Staff Name 411 100% 0.00 0.00 0.00 0.00 0.03 0.24 0.73 0.00 0.00 0.00 0.00 0.00 Staff Name 610 100% 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.99 0.00 Staff Name 610 100% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 Staff Name 110 100% 0.52 0.00 0.00 0.10 0.03 0.07 0.26 0.00 0.00 0.02 0.00 0.00 TOTALS 1600% 379% 3% 0% 105% 225% 389% 142% 38% 5% 8% 204% 3% 23.66 % 0.20% 0.00% 6.55% 14.05 % 24.29 % 8.88% 2.39% 0.34% 0.48% 12.76 % 0.16%
- 11. 10 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Allocation of Common Costs: Need to determine allocation basis Can use different allocations for different expenses Most common is number of FTEs Square Footage, % of time per activity… Clearly document in spreadsheet all determinations! Program-based Budget Worksheet for the Period of: _____________________ Program Supporting Total Program A Program C Fundraising General/ Admin. Income/Support Cash $ $ $ $ $ Accounts Receivable Government Foundations Individual Donors Earned Income Miscellaneous Total Income In-kind Total Income/Support Expenses Salaries Payroll Taxes Health Benefits Other Benefits Total Personnel Expenses Audit/Account. Fees Equipment Lease Insurance Training/Ed.-Staff Promotional Expense Consultant Fees Program Activities Supplies Office Equip./Repair Postage Telecommunications Occupancy Public Relations Utilities Depreciation Other Supplies Total Expenses
- 12. 11 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Accounting Systems • Accounts • Chart of Accounts • Activity (Classes) • Programs, Administration, Fundraising • Funding Sources (Jobs) • Grants, Unrestricted Donations, Restricted Donations, etc. NOTES______________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ _______________________________________
- 13. 12 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Chart of Accounts CASH: For Balance sheet 1000 Cash Accounts 1000 Petty cash 1010 Cash account in bank 1020 Savings account 1030 CD XXXX 1040 CD XXXX 1110 Accounts receivable 1180 Promises to give 2000 Liabilities (Money Owed to Others) 2000 Accounts payable 2100 Flex accounts 2200 Retirements 2300 Notes payable 2400 Vacation 3000 Other Assets 3010 Unrestricted net assets 3020 Temporarily restricted funds 3030 Board designated funds 3040 Property and equipment 3050 Endowment (permanently restricted) INCOME: 4000 Contributed Support 4100 Unrestricted foundation grants 4110 Unrestricted corporate grants 4110 Unrestricted individual contributions 4200 Restricted foundation grants 4210 Restricted corporate grants 4220 Restricted individual contributions 4300 State grants 4400 Local government grants 4500 Donated professional services 5000 Earned Revenues 5100 Registrations 5200 Publications 5300 Advertising/Promotions 5400 Clinic fees 5500 Government contracts 5600 Other contracts 5700 Interest 5800 Misc.
- 14. 13 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Sample Company Account Listing April 30, 2005 Account Type 1000 · Petty cash Bank 1020 · Cash in bank - operating Bank 1030 · Cash in bank - payroll Bank 1070 · Savings & short-term investment Bank 1110 · Accounts receivable Accounts Receivable 1115 · Doubtful accounts allowance Accounts Receivable 1210 · Pledges receivable Accounts Receivable 1215 · Doubtful pledges allowance Accounts Receivable 1240 · Grants receivable Accounts Receivable 1300 · Undeposited Funds Other Current Asset 1310 · Employee & trustee receivables Other Current Asset 1350 · Prepaid expenses Other Current Asset 1360 · Deposits Other Current Asset 1400 · Marketable securities Other Current Asset 1430 · Land held for investment Other Current Asset 1440 · Buildings held for investment Other Current Asset 1445 · Accum deprec - bldg investment Other Current Asset 1480 · Investments - other Other Current Asset 1510 · Land - operating Fixed Asset 1520 · Buildings - operating Fixed Asset 1530 · Leasehold improvements Fixed Asset 1540 · Furniture, fixtures, & equip Fixed Asset 1550 · Vehicles Fixed Asset 1660 · Construction in progress Fixed Asset 1725 · Accum depr - building Fixed Asset 1735 · Accum amort - leasehold improve Fixed Asset 1745 · Accum deprec- furn,fix,equip Fixed Asset 1755 · Accum deprec - vehicles Fixed Asset 2010 · Accounts payable Accounts Payable 2020 · Grants payable Accounts Payable 2050 · Credit card Credit Card 2100 · PAYROLL LIABILITIES Other Current Liability 2110 · Accrued payroll Other Current Liability 2120 · Accrued paid leave Other Current Liability 2130 · Accrued payroll taxes Other Current Liability 2150 · Accrued expenses - other Other Current Liability 2310 · Deferred contract revenue Other Current Liability 2350 · Unearned/deferred rev - other Other Current Liability 2410 · Refundable advances Other Current Liability 2550 · Line of credit payable Other Current Liability 2560 · Current portion- long-term loan Other Current Liability 2570 · Short-term liabilities - other Other Current Liability 2710 · Bonds payable Long Term Liability 2730 · Mortgages payable Long Term Liability 2750 · Capital leases Long Term Liability 2770 · Long-term liabilities - other Long Term Liability 2910 · Custodial funds Long Term Liability 3000 · UNRESTRICTED NET ASSETS Equity 3009 · Transfers to/from unrestricted Equity 3020 · Board-designated net assets Equity 3030 · Board-desig - quasi-endowment Equity 3001 · Opening Bal Equity Equity 3010 · Unrestrict (retained earnings) Equity 3100 · TEMPORAILY RESTRICT NET ASSETS Equity 3110 · Use restricted net assets Equity 3120 · Time restricted net assets Equity 3200 · PERMANENTLY RESTRICT NET ASSETS Equity 3210 · Endowment net assets Equity 4 · CONTRIBUTED SUPPORT Income 4010 · Indiv/business contribution Income 4070 · Legacies & bequests Income 4110 · Donated pro services - GAAP Income 4120 · Donated other serv - non-GAAP Income 4130 · Gifts in kind - goods Income 4140 · Donated art, etc Income 4150 · Donated use of facilities Income 4210 · Corporate/business grants Income 4230 · Foundation/trust grants Income 4250 · Nonprofit organization grants Income 4510 · Agency (government) grants Income 4520 · Federal grants Income 4530 · State grants Income 4540 · Local government grants Income 5 · EARNED REVENUES Income 5010 · Agency(government) contract/fee Income 5020 · Federal contracts/fees Income 5030 · State contracts/fees Income 5040 · Other government contracts/fees Income 5110 · Publication sales - program- Income 5115 · Bad debts, est - fees & sales Income 5180 · Program service fees Income 5210 · Membership dues - individuals Income
- 15. 14 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org 5220 · Assessments & dues - orgs Income 5310 · Interest-savings/short-term inv Income 5320 · Dividends & interest-securities Income 5360 · Security sales - gross Income 5365 · Security sales cost Income 5440 · Non-program sales Income 5450 · Advertising revenues Income 5490 · Miscellaneous revenue Income 5800 · Special events Income 6900 · ASSETS RELEASED FR RESTRICTION Income 6910 · Satisfaction of use restric Income 6930 · Time restriction satisfaction Income 7000 · GRANT & CONTRACT EXPENSE Expense 7010 · Contracts - program-related Expense 7020 · Grants to other organizations Expense 7030 · Allocations to affiliates Expense 7040 · Awards & grants - individuals Expense 7050 · Specific assistance - ind Expense 7060 · Benefits paid to or for members Expense 7200 · SALARIES & RELATED EXPENSES Expense 7210 · Officers & directors salaries Expense 7220 · Salaries & wages - other Expense 7230 · Pension plan contributions Expense 7240 · Employee benefits - not pension Expense 7250 · Payroll taxes Expense 7260 · Staff development Expense 7500 · OTHER PERSONNEL EXPENSES Expense 7510 · Fundraising fees Expense 7520 · Accounting fees Expense 7530 · Legal fees Expense 7540 · Professional fees - other Expense 7550 · Temporary help - contract Expense 7580 · Donated pro services - GAAP Expense 7590 · Donated other service - nonGAAP Expense 8100 · GENERAL EXPENSES Expense 8110 · Supplies Expense 8120 · Donated materials & supplies Expense 8130 · Telephone & telecommunications Expense 8140 · Postage, shipping, delivery Expense 8150 · Mailing services Expense 8160 · Equip rental & maintenance Expense 8170 · Printing & copying Expense 8180 · Books, subscriptions, reference Expense 8190 · In-house publications Expense 8200 · OCCUPANCY EXPENSES Expense 8210 · Rent, parking, other occupancy Expense 8220 · Utilities Expense 8230 · Real estate taxes Expense 8240 · Personal property taxes Expense 8250 · Mortgage interest Expense 8280 · Donated facilities - GAAP Expense 8300 · TRAVEL & MEETINGS EXPENSE Expense 8310 · Travel Expense 8320 · Conference,convention,meeting Expense 8400 · Depreciation & amortization exp Expense 8500 · Misc expenses Expense 8510 · Interest expense - general Expense 8520 · Insurance - non-employee Expense 8530 · Membership dues - organization Expense 8550 · List rental Expense 8560 · Outside computer services Expense 8570 · Advertising expenses Expense 8580 · Contingency provisions Expense 8600 · BUSINESS EXPENSES Expense 8610 · Bad debt expense Expense 8620 · Sales taxes Expense 8630 · UBITaxes Expense 8640 · Bank & credit card fees Expense 8650 · Taxes - other Expense 8660 · Fines, penalties, judgements Expense 8670 · Organizational (corp) expenses Expense 6800 · UNREALIZED GAIN (LOSS) Other Income 6810 · Unrealized gain(loss) - investm Other Income 6820 · Unrealized gain(loss) - other Other Income 9800 · FIXED ASSET PURCHASES Other Expense 9810 · Capital purchases - land Other Expense 9820 · Capital purchases - building Other Expense 9830 · Capital purchases - equipment Other Expense 9840 · Capital purchases - vehicles Other Expense 9920 · Additions to Reserves Other Expense 9930 · Program admin allocations Other Expense
- 16. 15 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Internal Control Policies: Policy Notes Cash Receipts Receiving cash and checks Preparing the deposit Reconciling the bank statement Accounts Receivable Aging of receivables and collections Accounting for bad debt Purchasing and Accounts Payable Approval for payment Paying bills Writing checks Signing checks Employees Employee records Payroll and payroll liabilities Employee advances Employee travel, reimbursable expenses
- 17. 16 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org NOTES______________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ Petty Cash Inventories Fixed/Capital Assets Depreciation Disposal of fixed assets Insurance Policies Board Minutes Contracts In-Kind Contributions
- 18. 17 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Assessing Financial Health: Three Key Questions: a. What are your immediate financial strengths and vulnerabilities? b. What are your long-term financial strengths and vulnerabilities? c. Do your constituents perceive you as efficient and competitive? NOTES_____________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________
- 19. 18 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Assessing Financial Health:
- 20. 19 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Overhead Rate: OVERHEAD RATE= Admin + Fundraising/Total Expenses A 30% Overhead Rate would mean that 30 cents on the dollar is spent on administration & fundraising and 70 cents on direct costs related to service delivery NOTES______________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________
- 21. 20 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Recovering Costs for Activities: a. How much it is actually costing you to provide your services? b. Are you budgeting and requesting the appropriate amount of money to recover these costs? Income Streams: a. Are your income streams stable and diverse? b. How much of your funding comes from Foundations? Government? Individuals? Special Events? Earned Revenue? c. Do you have diversification across income streams? (Different types of money sources) d. Do you have diversification within income streams? (Not all from one funder) Budgets: a. Is your financial team monitoring the budget?
- 22. 21 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org b. Are you on track, close to, or significantly off budget? c. Do you have an operating reserve? d. How are you planning to respond?
- 23. 22 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org
- 24. 23 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org
- 25. 24 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org NOTES______________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ Sample Program Budget Income/Expense Total Jan-Dec '04 ESL Income Foundations $108,000 $0 Corporations $25,000 $20,000 Government Federal $40,000 $20,000 State $2,250 $0 Local $850 $850 Individuals Individual Donors $257,000 $0 Trustees $2,800 $0 Fees for Services $10,750 $750 Total Income $446,650 $41,600
- 26. 25 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Immediate Concerns: a. Do you have sufficient resources to pay our bills and staff? b. Is cash flow (timing of receivables vs. payables) a challenge? c. Are you on track with our budget this year? d. Are you on track with our budget this year? Operating Reserves: a. How many months of operating reserves do you have? (Generally Nonprofit should strive to have 3-6 months of operating reserves) b. Are you budgeting to build your reserve with unrestricted donations or monies? If no, how will you start?
- 27. 26 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Cash Flow Example Jan Feb March April May June Cash Receipts Local Gov’t 10,000 10,000 10,000 10,000 10,000 10,000 Foundations 5,000 10,000 Corporation B 5,000 Special Event 15,000 Total Receipts 15,000 10,000 25,000 10,000 10,000 25,000 Cash Disbursements Payroll 10,000 10,000 10,000 10,000 10,000 10,000 Rent 3,000 3,000 3,000 3,000 3,000 3,000 Other Operating 2,000 1,500 3,000 1,500 2,000 1,500 Insurance 5,000 Event Expense 2,000 5,000 Total Disbursements 15,000 19,500 16,000 16,500 20,000 14,500 Cash Excess (short) 0 (9,500) 9,000 (6,500) (10,000) 10,500 Beginning Balance 3,000 3,000 (6,500) 2,500 4,000 (6,000) Ending Cash Balance 3,000 (6,500) 2,500 4,000 (6,000) 4,500 Cash Flow Worksheet July August Sept Oct Nov Dec Cash Receipts Local Gov’t Foundations Corporation B Special Event Total Receipts Cash Disbursements Payroll Rent Other Operating Insurance Event Expense Total Disbursements Cash Excess (short) Beginning Balance Ending Cash Balance
- 28. 27 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Capitalization & Depreciation: • Allows you to spread the cost of expensive capital acquisitions (phone systems, furniture, equipment, etc.) over the term of their useful life • Track Assets with Depreciation Schedule spreadsheet NOTES______________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ __________________________________________ Accrual Accounting (vs. Cash Accounting): Accrual accounting records revenue when you receive the commitment Cash accounting records revenue when you receive the cash Modified Accrual accounting records revenues when you receive the cash, and recognizes expenditures when they are promised NOTES______________________________________ ___________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________
- 29. 28 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ ___________________________________________________________ Other Financial Resources: Nonprofit Finance Fund: http://nonprofitfinancefund.org/ Nonprofit Assistance Fund: https://nonprofitsassistancefund.org/ National Council of Nonprofits: http://www.councilofnonprofits.org/ CCN Trainings: http://crcamerica.org/education/training/ http://www.coloradononprofits.org/category/events/ http://www.metrovolunteers.org/nonprofit_education Investopedia: http://www.Investopedia.com Financial Accounting Standards Board (FASB): http://www.fasb.org Compass Point: http://www.compasspoint.org Board Source: http://www.boardsource.org Guide Star: http://www.guidestar.org Nonprofit Quarterly: http://www.nonprofitquarterly.org Independent Sector: http://www.independentsector.org Internal Revenue Service (IRS): http://www.irs.gov American Institute of Certified Public Accountants (AICPA): http://www.aicpa.org
- 30. 29 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Next Steps Worksheet Top 3 Priorities towards Financial Best Practices ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________
- 31. 30 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org (Name of Organization & logo) ACCOUNTING POLICIES AND PROCEDURES SAMPLE MANUAL (Date) Note: this sample manual is designed for nonprofit organizations with the following staff involved with accounting processes: Executive Director/CEO Operations Director/Finance Director Bookkeeper Organizations with more staff than these involved with accounting may not find this sample manual relevant. The intent of the authors is not to prescribe the processes and policies described in the sample manual, but to provide a template that will make it easier for organizations to create such a manual than if they were starting from scratch. -- Deborah Connors, with assistance from Meredeth Clark and Steve Zimmerman, C.P.A. Legal disclaimer to users of this sample accounting manual: The materials presented herein are for general reference only. Federal, state, and/or local laws, or individual circumstances, may require the addition of policies, amendment of individual policies, and/or the entire Manual to meet specific situations. These materials are intended to be used only as guides and should not be used, adopted, or modified without the advice of legal counsel. These materials are presented, therefore, with the understanding that the California Association of Nonprofits is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.
- 32. 31 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Table of Contents I. Introduction....................................................................................................................................................................32 II. Division of Responsibilities......................................................................................................................................32 Board of Directors.......................................................................................................................................................32 Executive Director/Chief Executive Officer ........................................................................................................32 Operations Manager (Finance Director).............................................................................................................33 Bookkeeper ...................................................................................................................................................................33 III. Chart of Accounts and General Ledger..............................................................................................................33 IV. Cash Receipts ..............................................................................................................................................................34 V. Inter-Account Bank Transfers.................................................................................................................................34 VI. Cash Disbursements & Expense Allocations ...................................................................................................35 VII. Credit Card Policy and Charges ..........................................................................................................................36 VIII. Accruals.......................................................................................................................................................................36 IX. Bank Account Reconciliations...............................................................................................................................37 X. Petty Cash Fund...........................................................................................................................................................37 XI. Property and Equipment.........................................................................................................................................37 XII. Personnel Records....................................................................................................................................................38 XIII. Payroll Processing ...................................................................................................................................................38 XIV. End of Month and Fiscal Year End Close........................................................................................................39 XV. Financial Reports ......................................................................................................................................................40 XVI. Fiscal Policy Statements........................................................................................................................................40
- 33. 32 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org I. Introduction The purpose of this manual is to describe all accounting policies and procedures currently in use at (Organization) and to ensure that the financial statements conform to generally accepted accounting principles; assets are safeguarded; guidelines of grantors and donors are complied with; and finances are managed with accuracy, efficiency, and transparency. All (Organization)’s staff with a role in the management of fiscal and accounting operations are expected to comply with the policies and procedures in this manual. These policies will be reviewed annually and revised as needed by the staff and approved by the Executive Director and Finance Committee of the Board of Directors. II. Division of Responsibilities The following is a list of personnel who have fiscal and accounting responsibilities: Board of Directors 1. Reviews and approves the annual budget 2. Reviews annual and periodic financial statements and information 3. Reviews Executive Director's performance annually and establishes the salary 4. Two members of the board will be appointed by the board to be authorized signers on the bank accounts 5. Reviews and approves all contracts over ($00,000) 6. Reviews and approves all non-budgeted expenditures over ($00,000) 7. Reviews and advises staff on internal controls and accounting policies and procedures 8. Determines whether the organization should have an audit and, if so, chooses and contracts with the auditor Executive Director/Chief Executive Officer 1. Reviews and approves all financial reports including cash flow projections 2. Sees that an appropriate budget is developed annually 3. Reviews and signs all issued checks and/or approves check signing procedures 4. Reviews and approves all contracts under ($00,000) 5. Reviews and approves all grant submissions 6. Approves inter-account bank transfers 7. Is on-site signatory for all bank accounts 8. Opens all bank statements, reviews for any irregularities, and reviews completed monthly bank reconciliations 9. Oversees the adherence to all internal controls
- 34. 33 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Operations Manager (Finance Director) 1. Approves all program expenditures (may be done by a Program Manager at larger organizations) 2. Monitors program budgets 3. Reviews all payrolls and is responsible for all personnel files 4. Reviews and manages cash flow 5. Reviews and approves all reimbursements and fund requests 6. Processes all inter-account bank transfers 7. Assists Executive Director with the development of annual and program budgets 8. Reviews all incoming and outgoing invoices 9. Manages the petty cash fund 10. Receives and opens all incoming accounting department mail except bank statements 11. Monitors and manages all expenses to ensure most effective use of assets 12. Monitors grant reporting and appropriate release of temporarily restricted funds 13. Oversees expense allocations 14. Monitors and makes recommendations for asset retirement and replacement 15. Reviews, revises, and maintains internal accounting controls and procedures 16. Initiates donor thank you letter acknowledgements 17. Reviews all financial reports Bookkeeper 1. Overall responsibility for data entry into accounting system and integrity of accounting system data 2. Processes invoices and prepares checks for signature 3. Makes bank deposits 4. Processes payroll 5. Maintains general ledger 6. Prepares monthly and year-end financial reports 7. Reconciles all bank accounts 8. Mails vendor checks 9. Manages Accounts Receivable III. Chart of Accounts and General Ledger (Organization) has designated a Chart of Accounts specific to its operational needs and the needs of its financial statements. The Chart of Accounts is structured so that financial statements can be shown by natural classification (expense type) as well as by functional classification (program vs. fundraising vs. administration). The Operations Manager is responsible for maintaining the Chart of Accounts and revising as necessary. The Chart of Accounts is attached to this manual as an addendum.
- 35. 34 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org The general ledger is automated and maintained using our accounting software. All input and balancing is the responsibility of the bookkeeper with final approval by the Operations Manager. The Operations Manager should review the general ledger on a periodic basis for any unusual transactions. IV. Cash Receipts Cash receipts generally arise from: 1. Contracts and Grants 2. Direct donor contributions 3. Fundraising activities The principal steps in the cash receipts process are: The Receptionist receives incoming mail and forwards it unopened to the Operations Manager. The Operations Manager opens, date stamps, and distributes the mail. The Operations Manager enters all checks into a log, stamps all checks “for deposit only,” and makes two (2) copies of each check. The checks are kept in a locked cabinet until handed to the bookkeeper for processing and deposit. Weekly (or more often if necessary), the Operations Manager submits the following to the Bookkeeper for processing: the endorsed checks, the deposit log book, and the correct account allocation for each deposit. The Bookkeeper processes the deposit and takes it to the bank for deposit. A copy of the deposit slip is attached to the deposit. The deposits are put in a file to attach to the bank statement. The deposit log book is returned to the Operations Manager. All cash received will be counted, verified, and signed off by the Operations Manager and another available staff member. The cash will immediately be posted using the appropriate allocation. A receipt will be given to the paying party and a copy kept for internal purposes. The cash will be kept in a locked, secure location and deposited within 24 business hours. V. Inter-Account Bank Transfers The Operations Manager monitors the balances in the bank accounts to determine when there is a shortage or excess in the checking account. The Operations Manager recommends to the Executive Director when a transfer should be made to maximize the potential for earning interest. The Bookkeeper is directed in writing when to make a transfer and in what amount. A copy of the transfer is given to the Operations Manager.
- 36. 35 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org VI. Cash Disbursements & Expense Allocations Cash disbursements are generally made for: 1. Payments to vendors for goods and services 2. Taxes/license fees 3. Staff training and development 4. Memberships and subscriptions 5. Meeting expenses 6. Employee reimbursements 7. Marketing/promotional materials Checks are processed weekly. Invoices submitted to the Operations Manager by Wednesday will be processed and paid by Friday of the same week. Checks can be prepared manually within one day, but this should be limited to emergency situations. Requests for cash disbursements are submitted to Accounting in three ways: 1. Original invoice 2. Purchase request (submitted on approved form) 3. Employee expense report or reimbursement request All invoices must have the account code written on them and approved by the Program Manager prior to being submitted to accounting. Every employee reimbursement or purchase request must be documented on the approved form with travel authorization, receipts, nature of business, program allocation, and funding source (if applicable) before approving for reimbursement as follows: Lodging - an itemized receipt from the hotel detailing all charges, the person(s) for whom the lodging was provided, and the specific business purpose. Meals and Entertainment - a receipt must be provided showing the cost of food, beverage, and gratuities, including the names of every person for whom food or beverage was provided, and the specific business purpose. Other Expenditures - a receipt from the vendor detailing all goods or services purchased (including the class of service for transportation) and the specific business purpose. The Operations Manager reviews all requests for payment and: 1. Verifies expenditure and amount 2. Approves for payment if in accordance with budget 3. Provides or verifies appropriate allocation information 4. Provides date of payment taking into account cash flow projections
- 37. 36 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org 5. Submits to the Bookkeeper for processing The Bookkeeper processes all payments and: 1. Immediately enters them into the Accounts Payable module 2. Prints checks according to allocation and payment date provided by the Operations Manager 3. Submits checks, with attached backup documentation, to Executive Director for approval and signature. All checks in excess of $2,500 require a second signature from an authorized board or staff member; checks in excess of $xx,xxx must be authorized by the Board of Directors 4. Stamps invoice “paid” 5. Mails checks and appropriate backup documentation 6. Files all backup documentation in the appropriate file 7. Runs an accounts payable aging at the middle and end of each month and submits to the Operations Manager to assure timely payment of all invoices Expense Allocations Most non-salary expenses that benefit more than one cost center (administration, fundraising, and program) are spread across centers using a shared cost method. Under this method, the number of full-time equivalents (FTEs) within a department are divided by the total number of FTEs at the organization to determine the percentage of shared costs they should bear. This is done on a monthly basis by the Operations Manager. Occupancy expenses may be split between departments based on the percentage of square footage that is used by each department. VII. Credit Card Policy and Charges All staff members who are authorized to carry an organization credit card will be held personally responsible in the event that any charge is deemed personal or unauthorized. Unauthorized use of the credit card includes: personal expenditures of any kind; expenditures which have not been properly authorized; meals, entertainment, gifts, or other expenditures which are prohibited by budgets, laws, and regulations, and the entities from which (Organization) receives funds. The receipts for all credit card charges will be given to the Operations Manager within two (2) weeks of the purchase along with proper documentation. The Operations Manager will verify all credit card charges with the monthly statements. A record of all charges will be given to the Bookkeeper with applicable allocation information for posting. A copy of all charges will be attached to the monthly credit card statement when submitted to the Executive Director for approval and signing. The Executive Director's credit card usage will be provided to the Board Chair and the Board Treasurer. VII. Accruals To ensure a timely close of the General Ledger, (Organization) may book accrual entries. Some accruals will be made as recurring entries. Accruals to consider:
- 38. 37 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org 1. Monthly interest earned on money market accounts, certificates of deposits, etc. 2. Recurring expenses, including employee vacation accrual, prepaid corporate insurance, depreciation, etc. IX. Bank Account Reconciliations 1. All bank statements are given unopened to the Executive Director. The Executive Director reviews the statements for unusual balances and/or transactions. 2. The Executive Director gives the statements to the Bookkeeper for timely reconciliation as follows: a comparison of dates and amounts of deposits as shown in the accounting system and on the statement, a comparison of inter-account transfers, an investigation of any rejected items, a comparison of cleared checks with the accounting record including amount, payee, and sequential check numbers. 3. The Bookkeeper will verify that voided checks, if returned, are appropriately defaced and filed. 4. The Bookkeeper will investigate any checks that are outstanding over six months. 5. The Bookkeeper will attach the completed bank reconciliation to the applicable bank statement, along with all documentation. 6. The reconciliation report will be reviewed, approved, dated, and initialed by the Executive Director. X. Petty Cash Fund Petty cash funds are maintained by the organization. The funds are to be used for miscellaneous or unexpected purchases and the same approval procedures apply as mentioned in the cash disbursement section. 1. The petty cash fund will not exceed $250 and is kept in a locked file cabinet at all times. 2. The Operations Manager oversees the petty cash fund. 3. All disbursements made from petty cash are acknowledged in writing by the receiving party. 4. All money returned to the petty cash fund is counted and verified by the Operations Manager and another staff member. Receipts for items purchased with petty cash must be included with the return and should include appropriate account allocations as well as supervisor approval. 5. The Operations Manager and the Bookkeeper together will periodically count the cash in the petty cash fund. 6. No checks will be cashed by the petty cash fund. XI. Property and Equipment Property and equipment includes items such as: 1. Office furniture and equipment 2. Computer hardware 3. Computer software 4. Leasehold improvements
- 39. 38 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org It is the organization’s policy to capitalize all items which have a unit cost greater than one thousand dollars ($1,000). Items purchased with a value or cost less than one thousand dollars ($1,000) will be expensed in the period purchased. The depreciation period for capitalized assets is as follows: Computer Hardware 36 months Office Equipment 60 months Office Furniture 60 months Computer Software 36 months Leasehold improvements Length of lease 1. A Fixed Asset Log is maintained by the Bookkeeper including date of purchase, asset description, purchase/donation information, cost/fair market value, donor/funding source, identification number, life of asset. 2. The Log will be reviewed by the Operations Manager. 3. Annually, a physical inspection and inventory will be taken of all fixed assets and reconciled to the general ledger balances. 4. The Operations Manager shall be informed in writing of any change in status or condition of any property or equipment. 5. Depreciation is recorded at least annually. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Any impaired assets discovered during the inventory will be written down to their actual value. XII. Personnel Records 1. All personnel files contain the following documents: an application and/or resume, date of employment, position and pay rate, authorization of payroll deductions, W-4 withholding authorization, termination data where applicable, a signed confidentiality agreement, a signed acknowledgement of receipt of Employee Handbook, an emergency contact form, and other forms as deemed appropriate by the Operations Manager. 2. All employees will fill out an I-9 form and submit the allowable forms of identification to the Operations Manager. 3. The completed I-9 forms will be kept in a secure location separate from the personnel files. 4. All personnel files are to be kept in a secure, locked file cabinet and accessed only by authorized personnel. XIII. Payroll Processing 1. Timesheets are to be prepared by all staff on the approved form and submitted semi-monthly on the ___ and __ of the month. If the ___ and/or ___ of the month fall on a weekend or holiday, the timesheets are to be submitted the day prior to the weekend or holiday. Exceptions to the submittal date may occur and will be communicated accordingly.
- 40. 39 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org 2. Timesheets are to be kept on a daily basis and completed in ink – unless prepared electronically. 3. Any corrections to timesheets are to be made by making a single line through the error and writing in the correction. Correction fluid and/or tape are not allowable. 4. Timesheets are to be signed and dated by the employee and the employee’s supervisor for submission to the Operations Manager. 5. Any changes to the standing information of the payroll register from the prior period including addition of new employees, deletion of employees, or changes in base pay rate must be accompanied by an Employment Information Form and signed by the Executive Director before the change can be made. 6. The Bookkeeper will process payroll in a timely manner and record vacation time, holiday hours, sick time, and any other information deemed necessary to properly reflect time worked. 7. Paychecks will be distributed by the Operations Manager on the ___ and ____ of each month. If the ____ and/or the ____ fall on a weekend or holiday the paychecks will be distributed the day before. 8. If the employee requests that his/her check be turned over to a third party, the request must be made in writing prior to distribution. 9. Employees may choose direct deposit to a designated bank account. Their paycheck is deposited directly into the designated account on the payroll date. The employee will receive a verification stub. 10. The Operations Manager will review payroll expenditures and allocations monthly. 11. All quarterly federal and state payroll reports will be prepared and filed appropriately. 12. All W-2 statements are issued to employees prior to January 31st of the following year for the prior calendar year. XIV. End of Month and Fiscal Year-End Close 1. The Operations Manager will review and sign off on all month- and year-end journal entries. They will be printed and filed for audit trail purposes. 2. At the end of each month and fiscal year end, the Operations Manager will review all balance sheet accounts including verification of the following balances: cash accounts match the bank reconciliations, fixed assets accounts reflect all purchases, write-downs and retirements, accounts receivable and payable accounts match outstanding amounts due and owed. 3. The income and expense accounts review will include reconciliation to amounts received and expended and verification that payroll expenses match the payroll reports including federal and state payroll tax filings. 4. Once the final monthly and fiscal year-end financial statements are run, reviewed, and approved by the Operations Manager and Executive Director, no more entries or adjustments will be made into that month or year’s ledgers. 5. At the end of the fiscal year, the Operations Manager or outside CPA will prepare the annual Return for Organization Exempt from Income Tax (IRS Form 990). The return will be presented to the CEO, the Board Finance Committee, and the Board Chair for their review and approval. The Operations Manager will then file the return with the Internal Revenue Service by the annual deadline. 6. All other appropriate government filings including those required by the state tax board and attorney general’s office will be completed and filed with the appropriate agency.
- 41. 40 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org XV. Financial Reports The Bookkeeper will prepare the monthly and annual financial reports for distribution to the Operations Manager. The reports will include: balance sheet, statement of income and expenses, budget versus actual report for each program which has an established budget, a budget versus actual report for the organization, accounts receivable aging, accounts payable register and aging, cash flow projection, and any other requested reports. Periodic and annual financial reports will be submitted to the Finance Committee and Board of Directors for review and approval. XVI. Fiscal Policy Statements 1. All cash accounts (except petty cash) owned by (Organization) will be held in financial institutions which are insured by the FDIC. No bank account will carry a balance over the FDIC insured amount. 2. All capital expenditures which exceed one thousand dollars ($1,000) will be capitalized. 3. Employee or public personal checks will not be cashed through the petty cash fund. 4. No salary advances will be made under any circumstances. 5. No travel cash advances will be made except under special conditions and pre-approved by the Executive Director. 6. Reimbursements will be paid upon complete expense reporting and approval using the official (Organization) form. Reimbursements to the Executive Director will be authorized by the Board Chair. 7. Any donated item with a value exceeding ($50) will be recorded and a letter acknowledging the donation will be sent to the donor within two weeks of the receipt of the donation. 8. All volunteer time shall be recorded as in-kind donations. 9. The Executive Director and one designated Board and staff member are the signatories on (Organization’s) bank accounts. Disbursements exceeding ($2,500) require a second signature by an authorized board or staff member. Checks over $xx,xxx require approval from the Board of Directors. 10. Bank statements will be reconciled monthly. All bank statements will be given unopened to the Executive Director for review. 11. Correction fluid and/or tape will never be used in preparing timesheets or any accounting documents. Accounting and personnel records will be kept in locked file cabinets in the finance office and only parties with financial and/or HR responsibility will have access to the keys.
- 42. 41 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org GLOSSARY OF FINANCIAL TERMS FOR NONPROFITS Accounts payable The amount owed others for merchandise or services received by the organization. Accounts receivable The amount owed to the organization for merchandise or services provided to others. Accrual-basis accounting A system of financial recordkeeping in which transactions are recorded as expenses are incurred (i.e. when a bill is received for merchandise or services provided to the organization) and as revenue is earned (i.e. when merchandise or services are provided by the organization, or the organization receives a commitment of a contribution) rather than when cash is paid or received. The alternative is cash-basis accounting. Accrued interest Finance charges that have accumulated, but are not yet due or payable. Allowance for doubtful accounts An amount reflecting the portion of the accounts receivable which the organization reasonably believes it may not collect. Assets What is owned by the organization. Audit A formal evaluation of the accuracy of an organization’s financial statements and its compliance with Generally Accepted Accounting Principles. Balance sheet A report showing the financial condition of the organization at a particular moment in time. Sometimes referred to as a Statement of Financial Position in the nonprofit sector. Board-designated restriction A condition placed by an organization’s board of directors on how an amount of money is to be used. For accounting purposes, these funds are considered unrestricted because the condition was not specified by the donor. Bridge loan A short-term loan with a specific repayment source. Capital expenditure Payment of money to acquire fixed assets, such as a building or equipment Capitalizing an asset Recording the cost of land, a building or equipment as fixed assets rather than as an expense when purchased. Cash equivalents Funds which can be quickly and easily converted to cash; those investments or accounts receivables which mature within 90 days. Cash-basis accounting A system of financial recordkeeping in which transactions are recorded when cash is received or spent. The advantage over accrual-basis accounting is its simplicity. Cash flow The movement of cash into and out of an organization; or the difference between cash receipts and cash disbursements during a period of time. Cash flow statement A report of incoming and outgoing cash during a specified period of time. Collateral
- 43. 42 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org An asset which is pledged to a lender until a loan is repaid. In case of default, the lender legally owns the right to obtain or sell the collateral as payment on the loan. Committed grant A contribution for which the organization has received a formal notification from the donor that an award will be made at a future date. Conditional promise to give A commitment by a donor to make a contribution to the organization if a specific requirement is met. The agreement becomes binding once the requirement is met. Contribution A donation, gift or transfer of cash or other assets. Creditor One who is due money from another. Current assets Cash, investments and other assets that can be expected to be used or converted into cash within twelve months. Current liabilities Those liabilities due to be paid now or within the next twelve months. Current portion of long term debt The amount of the principal payments due and payable on loans within the current fiscal year, if the original term of the loan was longer than one year. Deferred revenue Income received before it has been earned. It is reflected as a liability on the Balance Sheet until it is earned and can be recognized as income in a future accounting period. Deficit Expenses in excess of income; an operating loss or an accumulation of operating losses. Depreciation The recognition of the decrease in value of a fixed asset over its physical or economic life. Direct costs Those expenses which are specifically attributable to a give program area or cost center. Earned income The amount of revenue received for goods or services delivered. Expense Cost of operations. Expenditure Cost of acquiring an asset, receiving a service or purchasing materials. Financial Accounting Standards Board (FASB) The national governing board, which sets the accounting standards for nonprofit organizations, known as the Generally Accepted Accounting Principles (GAAP). Fixed assets An asset that has a relatively long useful life, usually several years or more, such as land, building and equipment. Fund accounting A system of accounting based on separating information into groups which reflect organizational divisions or donor- imposed restrictions. Generally Accepted Accounting Principles (GAAP)
- 44. 43 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org The set of norms and standards of nonprofit accounting practices established by the Financial Accounting Standards Board (FASB) to help ensure the accuracy and consistency of financial records and reports. Grants Assets given by an individual or another organization with a legal restriction, sometimes quite specific, imposed upon its use. Income Statement A financial report that summarizes income and expenses for a given period of time. Also known in the nonprofit sector as the Statement of Activities. In-kind contribution A contribution made by providing goods or services rather than cash or other assets. Internal controls The system of practices, procedures and policies intended to safeguard the assets of the organization from fraud or error and ensure accurate recordkeeping. Liabilities What the organization owes to others, including accounts payable, payments of principal on debts and other accrued expenses. Loan The lending of a sum of money by a lender to a borrower, to be repaid with a certain amount of interest. Long-term debt/liabilities A loan which is made for more than one year. Net assets The difference between cumulative income less cumulative expenses over the life of the organization; on the Balance sheet, the difference between the organization’s total assets and its total liabilities indicating the net financial result for the organization. Net fixed assets The value of land, buildings or equipment owned by the organization after the deduction of the loss of part of the physical or economic life of the asset; Fixed assets less depreciation; Notes payable The amount an organization owes to others due to borrowing. Notes receivable The amount an organization is owed for loans made to others. Operating expense General term for expenses incurred in the normal process and activity of the organization. Operating reserve An unrestricted fund balance set aside by the organization’s board to stabilize an organization’s finances by providing a cushion against future unexpected expense or losses. Overhead The cost of items such as rent, phone or insurance that are paid to one vendor with the expense distributed among programs based on a formula. Permanently restricted funds Funds which the donor has indicated may not be spent by the organization, but which are invested to produce a stream of revenue (e.g. an endowment). Pledge A formal commit to make a contribution of a specific amount. Refinance To replace one loan with another, usually in order to extend the maturity, or to consolidate several loans.
- 45. 44 Community Resource Center 789 Sherman Street, Ste. 210 | Denver CO | 20203 www.crcamerica.org | 303.623.1540 | crc@crcamerica.org Reserves An amount set aside by the Board to be used in case of losses or an unexpected expense. Restricted funds Contributions which are designated by the donor for a specific use. See also temporarily restricted funds and permanently restricted funds. Revenue Income earned from services performed or merchandise sold. Secured loan A loan which is guaranteed as to payment by the pledge of something valuable. Short term debt/liability A loan which is issued within one year of date of its maturity. Support Income from voluntary contributions and grants. Technical assistance Help and advice provided on a specialized subject matter. Temporarily restricted funds Contributions designated by the donor for a specific use or for use during a specific period of time. The limitation expires at a defined time or when certain activities have been performed. Unconditional promise to give A pledge to make a contribution of cash or another asset without requiring the organization to meet any condition prior to receiving the contribution. Unrealized gain (loss) The increase (decrease) in value of an asset held by an organization but which has not been received through the sale of the asset. Unrestricted funds Contributions given without the donor indicating any limitations as to their use. Unsecured loan A loan made without collateral, but rather on the signature of the borrower. Working capital The portion of an organization’s assets which is not invested in fixed assets, but is kept liquid to care for day to day working needs; Also known as net current assets.