This page includes definitions for frequently used words you’ll encounter on your journey to become an arts finance wizard. Click to expand a term and see the definition.
501(c)3
The legal classification for nonprofit organizations in the US; 501(c)3 refers to the section of the Internal Revenue Code that defines tax-exempt organizations. 501(c)3 organizations may not “attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.” (Source)
One of the main advantages of organizing a business as a 501(c)3 nonprofit is that donations made to 501(c)3 organizations are usually tax-deductible for the donor.
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Accounting
Accounting is the practice of recording financial transactions, maintaining accurate financial records, and preparing financial statements that help individuals and organizations understand their financial health. Back to top
Accounts Payable
Money that is owed TO someone for goods or services. This is a liability (balance sheet) account. Back to top
Accounts Receivable
Money that the organization or business is owed. Examples include grants that have been awarded, but the payment hasn’t been received yet. This is an asset (balance sheet) account. Back to top
Balance Sheet
financial report showing total assets and liabilities at a certain point in time. Back to top
Bookkeeping
the process of recording, organizing and maintaining financial transactions to ensure accuracy. Back to top
Chart of Accounts
a list of all the asset, liability, net asset, income, and expense accounts that an organization uses to organize its transaction records. Back to top
Double-entry bookkeeping
a process of tracking financial transactions that includes a debit and credit for each transaction. Back to top
GAAP (Generally Accepted Accounting Principles)
“The accounting standards developed and established by the Financial Accounting Foundation’s (FAF) standard-setting Boards—the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB)—determine how those financial statements are prepared. The standards are known collectively as Generally Accepted Accounting Principles—or GAAP.” (Source)
Though not a legal requirement on their own, GAAP informs requirements for all US-based nonprofits and many for-profit businesses as well. Learn more.
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Profit and Loss
financial statement (report) that shows the income and expenses for a specific period of time. Also known as: income statement, statement of activities, income and expenses statement. Back to top
Transaction
interaction between two or more parties that involves the exchange of goods, services, money, or information. Back to top