The Simple, Straightforward Nonprofit Finance Glossary

Struggling to differentiate between nonprofit finance terms? We’ve got your back—this nonprofit finance glossary of 13 frequently used terms will help your team stay organized.


 

Accounting Record

Records of assets, liabilities, and incoming and outgoing transactions kept in journals, ledgers, and supporting documents (such as agreements, checks, invoices, vouchers) which an organization is required to keep for a certain number of years. This will be needed in order to know how well the organization will be performing in the following month/year.

Assets

An item that currently, or will later, financially benefit your nonprofit.

Budget

An estimate of income and expenditure for a set period of time that you formulate after assessing your current and past resources and expenditures and what you will need to achieve your future objectives. [Download GlobalGiving’s free nonprofit budget template.]

Deficit

When expenditures are higher than income.

Financial Management

Everything related to finances! It’s the process of planning, organizing, and monitoring your organization’s financial resources in order to achieve your organization’s goals.

Financial Monitoring

Tracking, preferably on a monthly basis, your income and expenditures according to your financial planning. If lagging behind, you will need to analyze why and reforecast in order for your finances to be on track.

Financial Planning

The process of identifying what you are trying to achieve throughout the year, how many resources you have available to achieve these goals, and what resources are lacking. This will translate into the income that you need in order to cover your expenditures and achieve your goals.

Internal Controls

Internal controls are performed by determined different members of staff. Think about who authorizes the expenses, who are the bank signatories, who controls the budgets, who is responsible for record-keeping, and who audits the accounts.

Liability

Items owed by a nonprofit or claims against your assets.

Reserves

The accumulation of a nonprofit’s surpluses and deficits over life. Reserves can be negative (deficit) as well as positive (surplus). Reserves evolve after each financial period.

Restricted Reserves

Reserves accumulated from donations and funds that your charity receives and which are set to be spent on a specific project or expense. Restricted reserves cannot be spent on any other activity that your charity carries out other than the one(s) pre-determined.

Surplus (or Profit)

When income is higher than expenditures.

Unrestricted Reserves

Reserves that you can invest in your charity. The return must go back to the charity to spend on its causes.

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