Glossary of Financial Terms
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ACCOUNTS PAYABLE - Money owed by an organization to its suppliers and/or vendors for goods or services purchased.
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ACCOUNTS RECEIVABLE - Money owed to an organization for goods and services it has sold or that has been committed to it as a grant or donation. Also called grants receivable.
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ACCRUED EXPENSES OR LIABILITIES - Items incurred during an accounting period for which payment is postponed. Examples include accrued salaries, accrued sales tax payable, and accrued rent payable.
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ACCUMULATED DEPRECIATION - The total amount the value of fixed assets has decreased to date due to general wear and tear or obsolescence.
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AIA DOCUMENT G702 - A form created by the American Institute of Architects to document the costs of work completed as of a certain date and the cost of work yet to be completed under a construction contract. Often used to track amounts that can be advanced by a lender to a borrower under a construction loan and helpful to ensure that there are sufficient funds remaining to complete and pay for the contract.
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AMORTIZATION -
Repayment of loan principal and interest. A loan can be amortized in several ways, including: (a) in equal installments of principal and interest, often called “mortgage amortization,” where the interest component of the payment reduces as the principal is paid down; (b) in regular payments of varying amounts, often called “commercial amortization,” which result from paying off a constant principal each installment plus interest on the amount of principal owed; and (c) in very irregular principal payments plus interest, often incorporating a larger final payment. Any time the loan maturity is shorter than the amortization term, a balloon balance will result. See balloon. |
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APPRAISAL - A formal report usually created by a certified real estate appraiser evaluating a real estate property in order to determine its value. One or more of three valuation methods are used: cost, replacement value, and market value. Appraisals can be ‘as is’ or ‘as improved’ which includes the value created by future capital expenditures.
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ASSETS - An item of current or future economic benefit to an organization. Examples include: cash, short-term investments, accounts receivable, grants receivable, inventories, prepaid expenses, buildings, furniture, equipment, vehicles, and long-term investments.
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ASSUMED NAME - An alternate name under which an individual or a legal entity may conduct business. Also known as a dba or doing business as name. In a loan transaction, it is critical to know the correct legal name of an entity and document it accordingly and accurately. See certificate of incorporation.
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AUDIT - A financial statement as of a certain date, usually covering a twelve-month period, prepared by a Certified Public Accountant (CPA), that includes an opinion letter, a statement of financial position (balance sheet), a statement of activities (income statement), a statement of cash flows, and notes. An auditor can have an unqualified opinion, stating that the organization appears to have followed all accounting rules appropriately and that the financial reports are reasonably accurate representation of the company's financial condition, or a qualified opinion, highlighting certain compliance issues or limitations in the company's statements. See review and compilation.
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AUTHORIZATION OF BORROWING -
A resolution passed by a board of directors or trustees acknowledging and approving the incurrence of debt. Also known as a borrowing resolution. See officer’s certificate. |
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BALANCE SHEET - Statement showing an organization's financial position (assets, liabilities and net assets) at the close of business on a particular date. Also known as statement of financial position. (This statement changes daily.)
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BALLOON - Final payment of a loan which is larger than the previous payments, arising when the amortization is longer than the maturity of the underlying note. See amortization.
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BASIS POINTS - A fraction of a percentage point, equal to one one-hundredth of a percent. Used to describe interest rates; i.e., 50 basis points is the same as ½%. See points.
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BOARD-DESIGNATED NET ASSETS/RESERVES - Unrestricted net assets that have a defined use or purpose, as determined by an organization’s board of directors.
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BORROWED MONEY/FUNDS - See debt.
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BORROWING BASE - A mechanism for monitoring that funds advanced under a line of credit bear some proportionality to either the asset being financed or the source of repayment. Usually defined as a percentage less than 100% of the available collateral, for instance, 80% of eligible accounts receivable. In order to fully secure a $100,000 line of credit using an 80% advance ratio, the borrower must have $125,000 in eligible accounts receivable at the time the loan is advanced. Typical advance ratios range from 50 to 80%. A borrowing base may be used as a control mechanism even if the loan is not secured by a lien on the receivables. See line of credit.
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BORROWING RESOLUTION - See authorization of borrowing and officer’s certificate.
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BRIDGE LOAN - Loan made on a short-term basis in anticipation of being paid out by permanent or long-term funding. Also refers to loans made against contract receivables or capital campaign pledges, expected to be repaid as those receivables or pledges are collected.
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BUILDING CODE - Regulations, ordinances or statutory requirements of a governmental unit relating to building construction and occupancy.
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BUILDING PERMIT - Permission granted by a local government to build or renovate a specific structure at a particular site. More than one permit may be required, depending on the situation.
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BUILDING RESERVE - A capital improvement reserve fund. Money set aside to pay for facility upkeep, where the amounts can be large, the ultimate need a certainty, but where the exact timing is uncertain. These are often big-ticket items, like replacing the roof, which are difficult to accommodate in a single year's budget. Also known as a replacement reserve. Typically, these are unrestricted, but board-designated funds.
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BY LAWS - A document outlining the governance of and what activities a legal entity may or may not engage in, including defining the officers, outlining the board composition and terms, the frequency of board meetings, the authority to enter into contracts for borrowing money and other purposes, and the number of signatures required to bind the entity legally.
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CAPITAL - Money available for an organization’s use in business transactions. [Can also be referred to as what an organization has and how it is distributed: Assets, Liabilities, and Net Assets.] See working capital.
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CAPITAL CAMPAIGN - A fundraising drive that takes place outside of (and in addition to) annual operating fundraising, usually to raise funds for a facility (or capital project), an endowment, and/or reserves.
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CAPITAL IMPROVEMENT - A facility or equipment upgrade (as distinguished from maintenance or repair) that will have a life of more than one year, and that adds to an organization's asset base. While sometimes considered an “expense,” this item should not show up on the Statement of Activities. Instead it should be capitalized and depreciated over its useful life and show up on the Statement of Financial Position as an increase in fixed assets and therefore on the Statement of Cash Flows in the investing section.
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CAPITAL PROJECT - See facility project.
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CAPITALIZATION - The distribution, nature and magnitude of an organization’s assets, liabilities and net assets. Also known as capital structure. Healthy organizations make choices about how they are capitalized, understanding the relative risks and merits of various options—e.g., whether to buy a building or grow an endowment. Also, “capitalized” refers to the purchase of fixed assets which do not appear on the income statement, but on the balance sheets, where they are depreciated over their useful life.
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CASE STATEMENT - A case for support, written primarily for a capital campaign, that outlines an organization's history, current status, future plans, including facility plans, and fundraising objectives. The case statement helps align board members, funders, and supporters to a shared organizational vision.
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CASH FLOW - The receipt and disbursement of monies.
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CASH FLOWS FROM FINANCING ACTIVITIES - Payments and/or receipts from lines of credit, notes payable, term loans.
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CASH FLOWS FROM INVESTING ACTIVITIES - Payments and/or receipts from acquisitions or sales of marketable securities, as well as from fixed assets such as property & equipment.
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CASH FLOWS FROM OPERATING ACTIVITIES - Cash changes in working capital items, such as accounts and grants receivable, inventory, accounts payable, accrued liabilities and deferred revenue.
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CERTIFICATE OF INCORPORATION - A document usually issued by a government authority such as a secretary of state documenting that a legal entity has been formed, including when and where and its full legal name.
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CERTIFICATE OF OCCUPANCY (C OF O) - A document from a local government building department which authorizes use of a certain space for specified activities by a certain number of people. Often required on construction projects prior to the entity occupying the space being allowed to move in.
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CHANGE IN NET ASSETS - Net assets are calculated by taking total revenue (including restricted and non-operating) less total expenses (including non-operating). The change in total net assets is an overall representation of a “bottom line.”
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CHANGE ORDER - A written order to a facility project
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CLEAN-UP - Term used to describe the requirement by the lender that a line of credit be completely paid out for a pre-defined period, usually a minimum of 30 days, during a one-year cycle. Also known as annual clean-up period.
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CLOSING COSTS - Expenses involved in transferring real estate from a seller to a buyer, including lawyer's fees, survey charges, title searches and insurance, and fees to file deeds and mortgages.
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CLOSING FEE - A fee charged by a lender to provide a loan to a borrower. Considered compensation for the costs involved with underwriting the loan and holding the commitment available for a specified period of time until closing. The fee is often paid partially at application, partially at the acceptance of the commitment and partially at closing. Also known as commitment fee and facility fee.
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COLLATERAL - Asset pledged to a lender until a loan is repaid; also called security. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.
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COMMITMENT FEE - See closing fee.
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COMMITMENT OR COMMITMENT LETTER - A statement in writing outlining and acknowledging the terms of a lender
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COMPILATION - A financial report as of a certain date, usually covering a twelve-month period, put together, but not reviewed or audited, by a Certified Public Accountant (CPA) that includes a statement of position (balance sheet), a statement of activities (income statement), a statement of cash flows, and may or may not have notes. See audit and review. The CPA states no opinion about the accuracy of the statements.
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COMPOUND ANNUAL GROWTH RATE - A calculation that estimates average annual percentage growth over a specified period of time, e.g., an organization that had $100K in revenue in 2000 and $500K in revenue in 2004 has a CAGR of X%.
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CONSTRUCTION DOCUMENTS - Drawings, specifications and legal documents setting forth in detail the requirements for the construction of the project.
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CONSTRUCTION LOAN - A loan, usually short-term, which is made to finance construction. The funds are disbursed as needed or in accordance with a pre-arranged plan, and the money is repaid upon completion of the project, often from the proceeds of a long-term loan, e.g., a mortgage.
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CONSTRUCTION MANAGER - A licensed general contractor who provides pre-construction services, professional management and technical services, including helping identify cost-effective means of meeting facility requirements. See project manager.
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CONTINGENCY - An amount budgeted (usually a percentage of total construction costs) to cover unexpected hard costs or soft costs.
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CONTRIBUTED REVENUE/INCOME - Revenue or income received from individual, foundation, corporate, or government donations with no products or services provided by the organization in direct exchange for the funds. See earned revenue/income.
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