Glossary

A B C D E F G H I J L M N O P Q R S T U V W X Y Z

A

ACCOUNT

The basic unit of accounting records; a category for recording financial information. Accounts record, in date order, additions to and deductions from assets, liabilities, equity, revenues and expenses. An account can contain information on something tangible, such as computer equipment or money in the bank, or something descriptive, such as how much of the money came from admissions versus fundraising. It can also record a state of obligation between two parties such as accounts receivable, accounts payable, deferred revenue and prepaid expenses. From a paperwork point of view, an account is a page divided into columns, with one column for adding to the account, a second for subtracting from it, and a third for the balance.

ACCOUNT ANALYSIS

A list of the items that make up the closing balance of an account. An account may have numerous transactions, both debit and credit, some of which may reverse each other. The account analysis lists items that have not cleared. The list should be totaled, and the total must equal the closing balance.

ACCOUNT BALANCE

The amount recorded in an account, calculated by totaling the additions and deductions; technically, the sum of the debit entries minus the sum of the credit entries. If the debit entries are greater, the account is said to have a debit balance. If credits exceed, the account has a credit balance. See also opening balance, closing balance.

ACCOUNT PAYABLE (A/P)

An amount owed to a supplier for goods or services bought on credit (bills to be paid). A/P is recorded in the Liabilities section of the Balance Sheet with other debts.

ACCOUNT RECEIVABLE (A/R)

An amount owed to you by a customer for goods or services that you have sold on credit. A/R is recorded in the Assets section of the Balance Sheet. What you “own” is the right to receive payment for the goods or services you have provided.

ACCOUNTANT

Someone skilled in the practice of recording and reporting financial information. Professionally, someone who holds an accounting designation. Colloquially, many cultural organizations use this term as the job title for the employee who handles their finances.

ACCOUNTING

The practice of recording, classifying, reporting and interpreting an organization’s financial information.

ACCOUNTING DESIGNATION

A qualification that confers the right to call oneself a public accountant. Accounting in Canada is a regulated profession. People earn an accounting designation by completing a program of study set out by one of Canada’s three professional accountancy organizations: Canadian Institute of Chartered Accountants (which confers the designation CA), Society of Management Accountants (CMA), and Certified General Accountant Association (CGA). Only CAs are licensed to perform audits.

ACCOUNTING EQUATION

Assets = Liabilities + Equity. This equation describes the relationship among the three account classes reported on the Balance Sheet. What we own balances to the amount we owe plus the amount that remains in the company.

ACCRUAL ACCOUNTING

A method where revenues are recorded when they are earned, even if money has not yet been received, and expenses when they are incurred, even if payment has not yet been made. In almost all circumstances, the Canadian Institute of Chartered Accountants requires that this method be used so as to yield statements that accurately measure the company’s operations and state of obligation with others. For contrast, see cash accounting, modified cash accounting.

ACCUMULATED DEPRECIATION

The total amount of depreciation recorded since a capital asset was purchased. For instance, in the case of a lighting system that cost $10,000 and is being depreciated over five years on a straight-line basis, at the end of year one, there would be $2,000 in accumulated depreciation. By the end of year three, there would be $6,000 in accumulated depreciation. By the end of year five, the lighting system would be fully depreciated. Note that each year takes a depreciation expense amount of $2,000. The depreciation expense is part of that year’s operations. Accumulated depreciation is recorded on the balance sheet, directly underneath the asset to which it pertains. So, in year three the balance sheet would show a capital asset of $10,000 with accumulated depreciation (a negative amount) of $6,000, and a book value of $4,000.

ACCUMULATED SURPLUS OR DEFICIT

The total amount a company has made (surplus) or lost (deficit) from its first day of operation up to the present moment. Technically, an accumulated surplus is an excess of assets over liabilities, resulting in positive equity. An accumulated deficit is an excess of liabilities over assets, resulting in negative equity. This information typically appears on the Balance Sheet of not-for-profits as Net Assets.

ACTUALS

The real, to-the-penny financial outcomes for projects and for overall operations as recorded in your accounts. For contrast, see budget, variance.

ADVANCE

See grant advance.

AGING

A report that organizes accounts payable (vendor aging) or receivable (customer aging) according to the number of days elapsed since an invoice was issued. Accounts would typically appear alphabetically, with the amount owing sorted into columns: 1-30 days, 30-60 days, 60-90 days and past 90 days. This report helps managers to assess the urgency of outstanding obligations.

ALLOCATE

To apply to a particular category. For instance, a cheque for $8,025 covering $6,500 for theatre rent, $1,000 for technicians and $525 for GST should be allocated to the general ledger accounts for Theatre Rent Expense, Technician Expense and GST Paid on Purchases.

AMORTIZATION

See depreciation.

ANNUAL GENERAL MEETING (AGM)

A formal meeting of the members of a corporation held after the end of a fiscal year to receive the financial statements, appoint an auditor (if the company is audited), and hold elections to the Board of Directors. General reports on the organization’s activities may also be presented.

ANNUAL MEETING OF SHAREHOLDERS

The commercial corporation’s equivalent of an AGM.

ANNUAL REPORT

A printed report on the past fiscal year, typically including the financial statements as well as a description of the organization’s programs, services and activities. The annual report can serve as a public relations tool, incorporating photographs and illustrations of the company’s work, and going to members, government funders, donors and sponsors.

ARTICLES OF INCORPORATION

The legal document for incorporating a business. Covers the basic characteristics of the company, including its name, number of directors and share structure. Contrast letters patent.

ARTS COUNCIL

An arm’s length agency of government, which distributes grants to individual artists and arts organizations. “Arm’s length” means that the council’s decisions are not subject to political approval. It has its own independent Board of Directors responsible for granting decisions (who may nonetheless be appointees of the government of the day). Arts council budgets are established by government through the ministry or department to which the council reports (usually the ministry responsible for culture).

ARTS SERVICE ORGANIZATION

Each artistic discipline has one or more associations that exist to serve the needs of individual artists and/or arts organizations working in that field. ASOs may provide a broad range of services, including professional development, publications, joint marketing initiatives, labour relations and advocacy.

ARTS STABILIZATION PROGRAMS

In Canada, the US and other countries, groups of arts managers, private donors and other interested parties have come together to generate new funding and other types of support to help arts organizations improve their capacity to sustain themselves in the face of the erosion of traditional funding.

ASSETS

What an organization owns; its property; technically described as “economic resources.” Common examples: money, accounts receivable, prepaid expenses, equipment, furniture and fixtures, building. Assets are reported on the Balance Sheet.

Current assets:

Assets that will be consumed or converted into cash within a year. For instance, money in the bank by definition is a current asset. Accounts receivable are typically collected (converted into cash) in 30 days, and therefore are current assets.

Fixed assets (capital assets):

Assets which retain their value for longer than a year, which are generally used to produce the goods and services the company sells, and which typically represent a significant investment for the company. Common examples are equipment, major furniture items, a building.

ASSOCIATION

See Unincorporated association or club.

AUDIT

Most commonly, a review of an organization’s accounting records and overall accounting practices undertaken by a Chartered Accountant. The result is a set of formal, annotated financial statements, covered by a letter giving the CA’s opinion as to whether the financial statements fairly reflect the organization’s financial position and operating results. Most government funders require audits from recipients of substantial grants and contributions. See also qualified opinion. Audits can also be performed by government authorities to determine whether an individual or a company is in compliance with regulations. In these cases, government auditors scrutinize records for possible irregularities, and may impose penalties and interest on any unremitted amount. All branches of the CRA conduct random audits, as well as targeted audits where some wrongdoing is suspected.

AUDIT TRAIL

A series of annotations in the bookkeeping records linking the steps in the accounting cycle. For instance, the bookkeeper should record on a paid bill the number of the cheque used to pay it. The cheque number is also recorded in the journal. Thus, the paid bill, the cheque and the journal entry are all linked, facilitating the auditor’s review.

AUDITOR’S LETTER

The cover letter, addressed to the members or to the Board of Directors, and stating the methods followed, auditor’s and management’s responsibilities, and the auditor’s opinion on the financial statements. See also qualified opinion.

B

BALANCE (NOUN)

See account balance, opening balance, closing balance.

BALANCE (VERB)

The act of comparing two sets of financial information that should be equal, identifying any legitimate differences, and correcting any errors. Commonly used as a synonym for “reconcile.” See also reconciliation, bank reconciliation.

BALANCE SHEET

The primary financial statement, reporting on an organization’s assets, liabilities and equity. It is said to provide a “snapshot” of the company’s financial health, as at a certain date. The Balance Sheet states the company’s financial position – how much we own, how much we owe, and how much net value remains in the company. The Balance Sheet is in balance if it fulfills the accounting equation Assets = Liabilities + Equity. That is, the value of assets is offset by the amount due to others + the amount of residual value.

BALANCED*

As in a journal entry, the books, or the Balance Sheet being in balance: Technically, these items are in balance when debits are equal to credits, under the accounting equation and the rules of double-entry bookkeeping. If they are not balanced, they are invalid.

As in a balanced account: Accountants seek ways of proving the accuracy of amounts recorded in the books by balancing them to other sources of information. Thus, one balances the bank account by comparing the amounts in the general ledger to those on the bank statement. The amounts should be equal, plus or minus any reconciling items. Likewise, one can balance accounts payable by comparing the total recorded in the A/P account to the sum of the paper copies of unpaid bills. If they are not equal, either bills have been posted incorrectly or there is a paperwork filing problem.

As in a balanced budget: Any two sums can be said to be in balance with each other if they are equal. In a balanced budget, revenues are equal to expenses.

* From the contrast of these three definitions, it should be clear that this term is used in varying degrees, ranging from mandatory features of double-entry bookkeeping to discretionary features of planning.

BANK RECONCILIATION

The process of comparing your record of cheques, deposits, and other banking transactions to the bank’s record of what it has processed on your account. Commonly, the two records will differ due to timing delays (e.g. between when you issue a cheque and the payee cashes it) and errors. You must correct errors and identify legitimate differences. The reconciliation report lists the legitimate differences – known as reconciling items – to prove that your record corresponds to the bank’s. It is important to reconcile to the penny every month. Cash in the bank is the most critical financial resource for most not-for-profit cultural organizations. Management needs to know that its banking records are accurate.

BANKERS’ ACCEPTANCES

A form of corporate bond sold on a discount basis. That is, if you want to purchase, for instance, $10,000 in bankers’ acceptances, you actually pay a lesser sum of money, and you receive $10,000 when the investment matures. The difference between the amount you paid (the discounted price) and the maturity price is effectively your interest, same as for Treasury Bills.

BOARD OF DIRECTORS

The governing body of a corporation, made up of individuals elected at an annual general meeting (not-for-profit) or an annual meeting of shareholders (commercial) to be responsible for managing the affairs of the organization. Directors of commercial corporations are typically compensated for their work. Privately held corporations may have a one-person Board; publicly traded must have at least three directors. Not-for-profit corporations must have at least three directors, who, by law, must be volunteers. Directors, and not the staff, are legally responsible for the organization. They must govern in the interests of the corporation, not in their own interest.

BONDS

A form of investment where you lend the issuer a sum of money for a fixed time period at a fixed interest rate. Frequently used by governments and major corporations.

BOOK VALUE

In the commercial world this term is often used to express the value of a business: assets minus liabilities, according to the accounting records. Book value may vary significantly from market value. The term may be used in various contexts. In the not-for-profit sector, we commonly see it with reference to capital assets, where book value means the original cost (i.e. amount paid to buy something) less any depreciation. Book value is an accounting measurement, based on cost. It bears no relation to what you could get by selling the item.

BOOKKEEPING

The clerical aspect of accounting, involving recording transactions.

BREAKEVEN

A financial result where revenues equal expenses. There is no surplus or deficit, but rather a zero bottom line.

BUDGET

A financial plan. Budget preparation is a key element of sound financial management. The budget not only sets out your game plan, it also provides a benchmark against which results can be measured. Funders require a budget to accompany grant applications. At the end of the project, they require a report showing approved budget against actual results. Prudent managers also examine the variance between budget and actuals as an evaluation and planning tool. For contrast, see actuals.

Capital budget:

A project budget for a fixed asset purchase.

Cash budget:

A budget used to forecast cash needs, incorporating cash in and cash out from all sources. For instance, a previous year’s accounts payable being paid off do not belong in an operating budget because they are not an expense for the current year. They must be included in a cash budget, however, as a use of cash.

Operating budget:

Covers an entire fiscal year’s revenues and expenses, including all projects, programs and services as well as overhead.

Project budget:

Covers one single activity, showing the direct revenues and expenses for that project. Management may include the project’s appropriate share of overhead.

BUSINESS NUMBER

A nine-digit account number assigned by the Canada Revenue Agency to cover its tax dealings with organizations. A two-letter suffix identifies sub-accounts for different types of tax. For example, RP = payroll, RT = Goods and Services Tax, RR = charitable registration. A further 4-digit suffix identifies sub-accounts for corporate divisions. Most not-for-profit cultural organizations do not have multiple divisions. A complete account number for reporting GST would look like this: 12345 6789 RT 0001.

BUSINESS PLAN

Commonly, the current, “actionable” portion of a strategic plan. It lays out practical plans for achieving the company’s desired results in the short term, including financial and sales/attendance targets.

BYLAWS

A collection of rules passed by the Board of Directors, laying out how the company will govern itself. They include matters such as number of directors, what officer/executive positions the Board will have, how directors can be nominated, elected and removed, and quorum for meetings. The organization’s key financial operations should also be covered, including fiscal year, banking arrangements, and signing officers for banking and other contractual matters. Finally, it is essential to define how to amend or repeal by-laws, and how to dissolve the organization. Companies commonly seek legal advice around drafting or revising their by-laws, to ensure that they follow legal requirements.

C

CANADA DEPOSIT INSURANCE CORPORATION (CDIC)

A federal crown corporation that insures deposits with member institutions including chartered banks, trust companies and loan companies. If your institution is a CDIC member, your account balances, up to $60,000, are insured against bank failure.

CANADA PENSION PLAN (CPP)

The federal government’s universal pension scheme. All working Canadians between the ages of 18 and 69 must participate. Annual contribution is based on gross earnings up to an annual maximum. In 2004, the first $3,500 of earnings is exempt, the maximum pensionable earnings are $40,500, and the rate is 4.5%, yielding a maximum contribution of $1,831.50. For someone earning $40,500, the calculation is as follows: (40,500 – 3,500) x 4.5% = $1,831.50 (Earnings – Exemption) x Rate = Contribution Employers match this contribution dollar for dollar. Employers deduct the employee’s share from each paycheque per tables published by the Canada Revenue Agency, and remit monthly with their own contribution. Freelancers must pay both “halves” of the CPP contribution.

CANADA REVENUE AGENCY (CRA)

The federal government department responsible for administering tax laws for both the federal government and most of the provincial and territorial governments (Canada’s tax collector). Formerly known as the Canada Revenue Agency, and, before that, as Revenue Canada. Canadian Institute of Chartered Accountants (CICA).

The professional accountancy organization responsible for defining Canada’s accounting standards and publishing them in the CICA Handbook. Members of the CICA are the only accountants licensed to perform audits.

CANCELLED CHEQUE

A cheque is cancelled, or cleared, when the bank has transferred funds from the payer’s to the payee’s account. To initiate this process, the payee must endorse the back of the cheque by signing it and recording their account number. The bank stamps the back of the cheque with a cancellation stamp indicating the branch where the cheque was received, and the date on which it was processed. Most business accounts include a monthly statement plus return of cancelled cheques, to facilitate bank reconciliation.

CAPITAL ASSETS

See Assets.

CAPITAL BUDGET

See Budget.

CAPITAL CAMPAIGN

A type of fundraising campaign intended to raise funds to purchase capital, or fixed, assets. Common goals are buying or refurbishing a building or major equipment.

CAPITALIZE

A term used with reference to capital assets. To capitalize an asset purchase is to record it in the capital assets section of the balance sheet, rather than as an expense on the income statement. Typically, capital assets are depreciated: that is, the cost of their purchase is spread over their useful life. See also depreciation.

CASH ACCOUNTING

A method where revenues are recorded when money is deposited to the bank, regardless of when it was earned, and expenses when payments are issued, regardless of when the expenses were incurred. In most situations, the CICA regards this method as unacceptable, since it does not match related revenues and expenses, and thus yields an inaccurate measurement of the company’s operations and state of obligation with others. For contrast, see accrual accounting, modified cash accounting.

CASH BUDGET

See Budget.

CASHFLOW PROJECTION

A financial plan for the company’s cash resources. The projection breaks the operating budget into units of time, typically months, and looks at how much cash is likely to be deposited and how much paid out each month. To revenues and expenses are added other sources of cash, such as collection of accounts receivable, and other uses of cash, such as payment of accounts payable. Each month’s net inflow or outflow is added to the opening bank balance, to calculate how much cash will be left at the end of the month. If the result is negative, management must review its plans and decide how to solve the problem.

CHARITABLE DONATION RECEIPT (TAX RECEIPT)

An official document issued to a donor containing name and address of the charity, charitable registration number, place where receipt was issued, date when the donation was received, date when the receipt was issued, name and address of donor, dollar amount of a cash gift or fair market value of an in-kind gift, and signature of a responsible individual authorized by the charity to acknowledge donations. Receipts must state that they are an official receipt, and must be serial-numbered. In the case of in-kind donations, there must be a brief description of the item. These requirements are set out in the Income Tax Act. The charity retains a copy for audit purposes. The donor attaches their copy to their T1 personal income tax return (or T2 corporate return, as appropriate) to claim a tax credit.

CHARITIES DIRECTORATE

The CRA branch that administers charities. Core functions include evaluating requests for charitable registration, administering rules for tax receipting and receiving the annual T3010 charities return. The Charities Directorate maintains an extensive website covering regulations, definitions, interpretations, and e-copies of T3010s.

CHARITY

An organization, incorporated or not, that is registered by the Charities Directorate under the definitions of the Income Tax Act. A charity’s mandate must address one or more of the four charitable purposes identified by Canadian law: relief of poverty, advancement of education, advancement of religion or “certain other purposes that benefit the community in a way the courts have said are charitable” (per the Charities Directorate website). Arts organizations fall within the last group. All of a charity’s resources must be devoted to its charitable purposes. It cannot exist for the benefit of an individual or a specific group; benefits must be available to the community at large. Charities are exempt from paying income tax, and entitled to issue charitable donation receipts. Each charity is assigned a charitable registration number – that is, a Business Number with the suffix RR.

CHART OF ACCOUNTS

A list of all accounts in general ledger order (Assets – Liabilities – Equity – Revenue – Expense). Most systems number accounts in a way that facilitates classification. For instance, a system that uses four-digit account numbers would typically organize them as:

Assets1000
Liabilities2000
Equity3000
Revenue4000
Expenses5000

CLOSING BALANCE

The account balance at the end of a period. This term would most commonly be used with reference to the end of a fiscal year.

CLOSING ENTRY

The last journal entry of the year, which debits revenue accounts, credits expense accounts, and (depending on the amount required to balance the entry) either debits or credits Retained Earnings. This has the effect of “zeroing out” the temporary accounts so that they are ready for the new year, and updating the company’s accumulated surplus or deficit.

CLUB

See Unincorporated association or club.

COLLATERAL

Property pledged as security for a loan. Lenders accept other financial resources, stocks and bonds, and real estate. If loan payments are not kept up, the lender is entitled to seize the collateral in payment.

COLLECTIVE AGREEMENT

A labour contract negotiated on behalf of the members of a group covering fees, benefits and terms of employment. Common in the performing arts, where actors, directors, stage managers, musicians, playwrights and designers are all covered by various collective agreements.

CONSERVATISM

A cautious, non-aggressive approach to financial management intended to foster long-term stability or growth with low risk. Conservatism in planning is demonstrated by estimating expenses at the high end of reasonable and revenues at the low end of reasonable, so that budgets are realistic and achievable. Conservatism in accounting practice is demonstrated by recording possible losses, but not recording gains until they are realized. Thus, if a company suffers investment losses, they are recorded. Investment gains are not recorded until the investment in sold and the cash is in hand.

CONTRIBUTED CAPITAL

Owners of a commercial business, whether they are sole proprietors, partners or shareholders of a corporation, are expected to contribute to their business’ success by putting in money or other resources (e.g. equipment, furniture, a vehicle). This source of funding is recorded in the Equity section of the Balance Sheet. Corporations without share capital do not have owners, and thus no contributed capital. For contrast, see Retained Earnings.

CONTRIBUTION

A type of government funding. According to the Department of Canadian Heritage, a contribution is “a conditional transfer payment to an individual or an organization.” The purpose of the funding and the conditions under which it is given are laid out in a legally binding contribution agreement. Contributions are subject to audit and review. See also grant.

CORPORATION

A form of organization. A corporation exists as a separate legal entity. It earns its own money, pays its own bills and is responsible for its own legal obligations, including taxes. Owners, directors and members are protected by limited liability, meaning that they are not responsible for the corporation’s debts. In the case of some government obligations, e.g. payroll tax debt, owners, directors and members may be held personally liable. For contrast, see Proprietorship and Partnership.

CORPORATION WITH SHARE CAPITAL

A business corporation. Shares serve as the ownership mechanism. Profits are apportioned amongst the shareholders according to how many shares they own. Most commercial corporations are ineligible for government funding from cultural sources. There are cultural funding programs for certain types of businesses, e.g. book publishers and film producers.

Privately held corporation:

One shareholder or a small group of shareholders own all of the shares.

Publicly traded corporation:

Shares are traded on a stock exchange. There may be many thousands of shareholders.

CORPORATION WITHOUT SHARE CAPITAL

A type of corporation where there is no owner, and thus no shares. Instead, the members elect a Board of Directors to administer the corporation for the public good according to its mandate. Any profits are held within the corporation to further its objectives; no one can benefit personally.

CORRECTING ENTRY

To eliminate the effect of an error on the books, accountants can create an entry reallocating an amount from one account to another. For example:

GENERAL JOURNAL

DateDescriptionDebitCredit
15-Sep-04To recognize grant
Bank10,000.00
Sponsorship10,000.00
15-Sep-04To correct previous entry; amount is misallocated
Sponsorship10,000.00
Government Grants10,000.00

The same effect can be achieved by posting a reversing entry, to eliminate the effect of the error, and then the correct entry.

COUNCIL FOR BUSINESS AND THE ARTS IN CANADA (CBAC)

An arts service organization dedicated to increasing private sector support of the arts, and to fostering creative partnerships between businesses and arts organizations. It publishes the results of annual financial surveys of visual and performing arts organizations whose budgets are greater than $100,000.

CREDIT (CR)

A technical term meaning the right-hand side of an account. For liability, equity and revenue accounts, you add information on the credit side. For asset and expense accounts, you subtract information on the credit side. See also debit.

CURRENT ASSETS

See Assets.

CUSTOMER AGING

See Aging

D

DEBIT (DR)

A technical term meaning the left-hand side of an account. For asset and expense accounts, you add information on the debit side. For liability, equity and revenue accounts, you subtract information on the debit side. See also credit.

DEFERRED REVENUE

Payment received before the work has been done, e.g. a grant advance. Recorded in the Liabilities section of the Balance Sheet. Deferred revenue constitutes a debt because you owe the funder either the completed work, or the money back. At the point when you are carrying out the work, you make an entry transferring the amount to Revenue. Compare prepaid expense.

DEFICIT

The standard not-for-profit term for a loss. An excess of expenses over revenues, meaning that the organization has lost money over a given period of time, most commonly one fiscal year. The deficit appears on the bottom line of the Income Statement. See also Accumulated Surplus or Deficit.

DEPRECIATION

The accounting practice of spreading the cost of a capital asset out over its useful life. For instance, a new lighting system will last a number of years. If it were accounted for as an expense in the year of purchase, then that year might incur a deficit related to the extraordinary equipment purchase. Subsequent years would “get off easy” because the lighting system would still be in use but no cost would be charged to those years. Using depreciation, management decides how many years the lighting system is likely to last. If five years is the anticipated useful life, and the system cost $10,000, then each year of ownership is charged $2,000. This is called the straight-line method; other methods exist. Depreciation is an estimate. If the system failed in year three, the undepreciated amount would have to become an expense. If the system lasted for eight years, then the last three years would benefit from the use of fully depreciated equipment. The term is synonymous with amortization. See also accumulated depreciation.

DIRECT REVENUES, EXPENSES

Items that pertain to a particular project, program or service. The company would not bring in these revenues or incur these expenses were it not for this activity. See also indirect revenues, expenses; overhead.

DIRECTOR

A member of a Board of Directors, elected by the members of the corporation (not-for-profit) or the shareholders (commercial), and responsible for acting in the best interest of the corporation rather than for personal benefit. Directors of not-for-profits must be individuals 18 years or older, a member of the organization, and not bankrupt.

DONATION

A freewill gift of cash, goods or services, where the giver receives no quantifiable benefit in return. A donation may be directed to a specific program or service, or it may be for general company operations. For contrast, see sponsorship.

DONOR

The giver of a donation. The donor is entitled to receive a charitable donation receipt equal to the value of their gift. For contrast, see sponsor.

DOUBLE-ENTRY BOOKKEEPING

Under double-entry bookkeeping, every transaction must have two sides, a debit side and a credit side. This requirement creates an arithmetical checking mechanism. If the sum of the debits does not equal the sum of the credits, you know you have made an error. If every individual entry is balanced, then the books, as the sum-total of all entries, will be in balance, and the statements prepared from them will also be in balance.

E

EARNED REVENUE

Revenue resulting from the sale of goods or services. For contrast, see unearned revenue.

EFFECTIVE TAX RATE

The rate of tax that you actually pay on your income. This is a blended rate: the result of applying the tax rates to your income as described above. You can work it out by dividing actual income tax paid by net taxable income, and expressing the result as a percentage.

EI (EMPLOYMENT INSURANCE)

The federal government’s job protection insurance scheme. Annual premium is based on gross earnings up to an annual maximum. In 2004, maximum insurable earnings are $39,000 and the rate is 1.98%, yielding a maximum premium of $772.20. The calculation for someone earning $39,000 is as follows: 39,000.00 x 1.98% = $772.20 Earnings x Rate = Premium Employers contribute $1.40 for every dollar paid by the employee. The employer deducts the employee premium from each paycheque per tables published by the CRA, and remits monthly with their own contribution. In the case of job loss, workers may qualify for income support and/or training while they seek new employment. Freelancers are ineligible for coverage.

ENDORSE

To sign the back of a cheque in order to cash it or deposit it. Generally, only the payee can endorse the cheque.

ENTRY

The record of one transaction, consisting of balanced debits and credits. See also reversing entry, correcting entry.

EQUITY

A company’s residual value; the amount that would be left if assets were used to pay off liabilities. A company can have negative equity if its debts are greater than its assets. In the commercial world, equity is made up of two components: contributed capital and retained earnings. Not-for-profits have no owners, thus no contributed capital; only retained earnings, which we call Net Assets, or Accumulated Surplus or Deficit. Equity is reported on the Balance Sheet.

EXPENSE

Decreases to a company’s resources resulting from day-to-day operations, usually money spent delivering the company’s programs and services. Expenses are reported on the Income Statement.

F

FAIR MARKET VALUE

Here is the Canada Revenue Agency’s definition, from their online Charities Glossary: “Fair market value is usually the highest dollar value you can get for your property in an open and unrestricted market and between a willing buyer and a willing seller who are knowledgeable, informed, and acting independently of each other.” This term is important in the charitable sector, where donors of gifts in kind are entitled to a charitable donation receipt based on fair market value (FMV). See also market value. Compare book value.

FINANCIAL POSITION

The company’s overall financial health, particularly as shown by the Balance Sheet, which captures the value of its assets, the extent of its debts and the net value of the company. The Income Statement, notes to the statements and other supporting materials can assist with clarifying the position.

FINANCIAL STATEMENTS

Formal financial reports including the Balance Sheet, Income Statement, supporting statements and additional information that can help readers understand the company’s financial position. The statements contain the up to date balances of all accounts in the general ledger. See also audit.

FISCAL YEAR

Any 12 consecutive months used as an organization’s accounting cycle. By law, proprietorships and partnerships must use a calendar year (same as the personal income tax year). Corporations may choose a year-end that corresponds best to their activities.

FIXED ASSETS (CAPITAL ASSETS)

See Assets.

FIXED COSTS

Costs where total cost tends to remain stable, but unit cost varies depending on level of activity. For example, theatre rent is based on size of facility and services offered. A company that sells out pays the same rent as another group whose show bombs. Unit cost per occupied seat falls the more seats are sold. For instance, if a theatre holds 300, and the company offers 7 show per week, total capacity is 2100 seats per week. If rent is $5,000 per week and the company sells out, unit cost per occupied seat is:

$5,000 ÷ 2,100 = $2.38.

If the company runs at 25% of capacity, unit cost rises to:

$5,000 ÷ (2,100 x 25%) = $9.52.

In the latter scenario, $9.52 per ticket sold goes toward paying the rent. For contrast, see variable costs.

FIXED INCOME INVESTMENT

An investment that, by contract, yields a guaranteed amount of interest. The fixed rate yields a hard revenue number for budgeting purposes. The fixed rate does not guarantee that the investment itself is secure. Certain types of bank investments are insured by the CDIC, and are therefore considered safe. Government bonds are generally considered secure. The safety of corporate bonds depends on the stability of the issuer. See also GIC, term deposit.

FLATLINED

When grants are frozen year over year, they are said to be flatlined. There are often many more applicants for funding than arts councils can accommodate. A group receiving the same amount year over year is often considered to be in a fairly good position. Weaker groups receive cuts, and groups with an above-average rating may receive an increase.

FREELANCER

A self-employed person. For contrast, see payroll. Freelancers are, in essence, sole proprietors. They are responsible for their own taxes, so no EI, CPP or income tax is deducted from their fees, and the engager does not have to make EI or CPP contributions on their behalf.

G

GENERAL LEDGER

See Ledger.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

The set of principles that govern the accounting profession. Includes financial statement concepts such as Understandability (your statements should be clear to someone who has made a reasonable effort to learn how to read financials), Cost vs. Benefit Constraint (the cost of compiling information shouldn’t exceed the benefit of having it), and Materiality (errors small enough that they wouldn’t affect decisions about the company are permissible). These are “principles” rather than “rules” because it would be impossible to fulfill all of them perfectly at the same time. There is always some degree of trade-off, which is a matter of professional judgment within the circumstances.

GOVERNMENT FUNDERS

A generic term generally understood to include arts councils and direct government sources such as the Department of Canadian Heritage, provincial ministries of culture and municipal governments. Arts councils operate at arm’s length, but direct government funding is allocated according to the policies of the government in power.

GRANT

A type of government funding. According to the Department of Canadian Heritage definition, “a transfer payment made to an individual or organization, which is not subject to being accounted for or audited, but for which eligibility and entitlement may be verified, or for which the recipient may need to meet pre-conditions.”

Grant advance:

Portion of grant paid out when the grant is approved or soon thereafter, often before the work has been done.

Grant holdback:

Portion of grant held by the funding agency until the work is complete and a report has been submitted.

GROUP (VERB)

In preparing summary reports, one groups line items together by adding them and replacing the detail with a total amount. For example:

Set$3,250
Props$ 950
Costumes$2,275

Could be grouped onto one line titled Production Expenses, with the value $6,975. Set, props and costumes would disappear from the report. Contrast subtotal.

GST (GOODS AND SERVICES TAX)

A federal sales tax introduced in 1993 to replace the old manufacturers sales tax. Consumers pay a 7% tax on most items, with certain exemptions including essentials such as groceries. Tax is collected by companies registered with the CRA. Most GST registrants – including all commercial registrants – remit the amount of GST they charged on sales minus the amount of GST they paid on their own purchases. Regulations for charities and not-for-profits can be quite complex. Most do not have “sales” per se (for instance, religious organizations), or very limited sales. These may opt not to charge GST, and thus qualify for a rebate of 50% of GST paid on purchases. Charities who have significant sales (e.g. box office for performing arts organizations) may qualify to remit under the standard commercial method, or they may have to use a special charities method, whereby they remit 60% of GST charged on sales minus 50% of GST paid on purchases. Other GST calculation methods exist for specific circumstances. Consult the CRA for the appropriate method for your organization.

GUARANTEED INVESTMENT CERTIFICATE (GIC)

A form of investment where you deposit money for a fixed period of time (usually one to five years), and receive a fixed amount of interest. See also term deposit.

H

HARD EXPENSES

Expense items where management has limited discretion or flexibility, or strong commitment. For instance, leases and employment contracts would be considered hard, as they cannot easily be broken or renegotiated. For contrast, see soft expenses.

HARD REVENUES

Revenues that are firmly committed or easy to forecast accurately. For instance, interest from an endowment fund. For contrast, see soft revenues.

HOLDBACK

See grant holdback.

I

IN-KIND DONATIONS

Gifts of goods or services rather than money. A charitable donation receipt can be issued for the fair market value. The charity is responsible for ensuring that the receipt fairly states the item’s value, and may be required by the CRA to provide proof of the stated value, such as a professional appraisal, in the case of an audit.

INCOME STATEMENT

The financial statement that reports revenues, expenses and the “bottom line” – that is, the surplus or deficit. It summarizes one fiscal year’s activities, including all projects and services as well as administration. The bottom line carries forward to the Equity section of the Balance Sheet, where it appears as Net Assets or Retained Earnings. A surplus on operations adds to the value of the company, and a deficit depletes it.

INCOME TAX

Levied by both federal and provincial/territorial governments on the earnings of individuals and corporations. Most provinces and territories ask the CRA to collect income tax on their behalf. Individuals receive a basic personal exemption – an amount of tax-free income. The federal exemption in 2004 is $8,012. Above the exempt amount, each government sets a scale of tax rates. Thus, the first “chunk” of earnings is taxed at zero. The next “chunk” is taxed at the lowest rate, and so on. The “marginal rate” is the rate on the next dollar of earnings. The “effective rate” is the blended rate on the entire salary. CRA publishes tax tables for ease of payroll calculation. See also T1, T2, T4, T4A.

INDIRECT REVENUES, EXPENSES

Items that were not incurred specifically for a project, program or service, but are nonetheless associated with or necessary to that activity. For instance, operating grants are awarded for a complete annual program, and thus can be partially attributed to each project. The exact amount belonging to one project may not be readily quantifiable. Likewise, all activities draw on the company’s overhead resources, but it may not be easy to compute how much rent, phone, staff time, etc., to allocate to each project. Compare direct revenues, expenses.

J

JOURNAL

A book of original entry, meaning the first place where transactions are entered in the accounting records. Journals contain daily records of financial transactions. A company may use a number of journals to record specific types of transactions: sales journal, purchases journal, payroll journal, etc. A general journal is used to record entries that do not belong in one of the others. Each journal entry has at least two items, one debit and one credit, that offset each other. There can be multiple debits and/or multiple credits, but they must always equal each other. For example, the journal entry to record a cheque shows a withdrawal from the bank account offset by an increase to an expense account.

JOURNAL ENTRY

See entry, reversing entry, correcting entry.

L

LEDGER

A book of final entry, containing the accounts of the company. Day-by-day information from the journals is entered into the ledger by account.

General ledger (GL):

Contains all of the company’s accounts. Used to prepare the trial balance and financial statements. Laid out with columns for date, description, posting reference, debits, credits and balance.

Sub-ledgers:

Contain subsidiary sets of information. The Accounts Payable sub-ledger contains one account for each vendor. The sum of the individual vendor accounts must equal the balance of the A/P account in the GL. Likewise, the Accounts Receivable sub-ledger contains one account for each customer, and must balance to the A/R account.

LETTERS PATENT

The legal document for incorporating without share capital. The application form requires you to identify a head office address, name at least three directors, and list the objects of the corporation (its purpose or mandate). The form also covers certain legal provisions, some of which are essential if the organization wishes to become a charity. Contrast articles of incorporation.

LIABILITIES

Obligations; debts; what a company owes to others. Common examples: bank loan, accounts payable, deferred revenue. Liabilities are reported on the Balance Sheet.

Current liabilities:

Liabilities that generally must be paid off within a year. Common examples: general bills to be paid, bank lines of credit.

Longterm liabilities:

Liabilities that will be paid off over a term longer than a year. Common example: mortgage on a building.

LINE OF CREDIT, REVOLVING LINE OF CREDIT

A common form of bank borrowing, where the company is approved for a loan up to a certain limit. Instead of advancing the whole loan at once, the bank monitors the account. When the account slips into overdraft, the bank advances a portion of the loan. When the company deposits funds, the bank uses them to pay down the loan.

LOSS

An excess of Expenses over Revenues, meaning that a business has lost money over a given period of time, most commonly one fiscal year. See also deficit.

LOWEST COMMON DENOMINATOR

The smallest number that can be used as the denominator for two or more common fractions. For instance, if you need to work in both halves and fifths, 10 is the lowest common denominator because 1/2 and 1/5 can be restated as 5/10 and 2/10. Also known as least common denominator, and lowest common multiple.

M

MARGINAL TAX RATE

The ordinary rate of income tax charged on the next dollar of earnings. The Canadian tax system has a series of brackets. If you earn enough, different “chunks” of your earnings will be taxed at different rates, depending on what bracket they fall into. The marginal tax rate is the rate you pay on the taxable income in the highest bracket.

MARKET VALUE

The price at which an item commonly sells in an open marketplace. See also fair market value. Compare book value.

MEMBERS

Those belonging to an organization. Members of a not-for-profit corporation have the responsibility of electing the Board of Directors. Some not-for-profits, notably membership associations, specify a membership structure in their by-laws. In other cases, the directors serve as the de facto membership, managing Board nominations and elections internally.

MODIFIED CASH ACCOUNTING (ALSO KNOWN AS MODIFIED ACCRUAL ACCOUNTING)

The middle ground between cash and accrual methods, often used by small organizations. Transactions are recorded on a cash basis during the year to simplify bookkeeping. At year-end, management identifies transactions that need to be accrued, typically by setting up accounts receivable, accounts payable, deferred revenue and prepaid expenses. The final financial statements are thus issued on the accrual method.

N

NET ASSETS

The common term for Equity when accounting for not-for-profits.

NOT-FOR-PROFIT

Also “NFP,” “non-profit.” Colloquial terms for a corporation without share capital. If you are “not-for-profit” then you must be “for” something else. That something is captured in your mission statement, vision statement, or mandate.

NOTES TO THE FINANCIAL STATEMENTS

Used to amplify and clarify the items in the financial statements. Notes have the same importance as the numbers, and must be read as thoroughly. Typical notes on not-for-profit statements include the company’s mandate, whether it was incorporated federally or provincially, and significant accounting policies. Notes can also be used to provide detail; for instance, the Income Statement may group all government funding onto a single line, with a note specifying amounts from each funder. A note may be used to itemize grants by funding program.

O

OPENING BALANCE

The account balance at the beginning of a period. Most commonly used with reference to the beginning of a new fiscal year. At the start of a new year, the opening balance of revenue and expense accounts is zero. The opening balance of asset, liability and equity accounts is equal to their closing balance at the end of the previous year (that is, a June 30 closing balance carries forward to July 1).

OPERATING BUDGET

See Budget.

OPERATING GRANT

A grant that helps underwrite a company’s entire program of activity for a fiscal year, including overhead. For contrast, see project grant.

OPPORTUNITY COST

The estimated loss to a company from not pursuing an activity that could have proven beneficial. It is important to recognize that choices not taken may have a cost. For example, the opportunity cost of staying with dial-up internet service rather than high-speed can by calculated by estimating the cost of staff time spent waiting for downloads, plus whatever the company misses by tying up a phone line (perhaps lost customer inquiries and phone orders).

OVERHEAD

Core expense items necessary for the stable functioning of the company, not readily attributable to any one activity. Typical examples include rent, utilities, telephone, bank charges, insurance, administrative staff time. See also direct and indirect revenues and expenses.

P

PARTNERSHIP

A form of business organization where two or more people own the business. They may own equal shares of the company, or they may divide responsibility in whatever proportions seem fair to them. There is no legal distinction between the business and the owners. Thus, the owners are responsible for earning the money, paying the bills, addressing the legal obligations and paying the taxes.

General partnership:

All partners have full legal liability.

Limited liability partnership:

Operates like a general partnership, except that each partner is responsible only for their own negligence and that of any staff whom they supervise directly. Used by many law and accounting firms.

Limited partnership:

The limited partners enjoy limited liability for the partnership’s debts and obligations while still sharing in the profits according to their level of contribution to the enterprise. There must be at least one general partner.

PAYABLES

See Accounts payable.

PAYROLL

Remuneration paid to the employees of an organization. The CRA publishes a guide defining the employment relationship (Employee or Self-Employed). In a nutshell, an employee works under the direction of the employer, using the employer’s tools, and receiving a set rate of pay. Employers are obliged to deduct EI, CPP and income tax contributions from paycheques, to make EI and CPP matching contributions, and to remit this money to the CRA on a regular basis, usually monthly.

PAYROLL SOURCE DEDUCTIONS

Amounts withheld from employees by the employer for remittance to the government or another authority. For instance, union dues may be withheld at source, and remitted to the union on the employee’s behalf.

PERMANENT ACCOUNTS

Asset, liability and equity accounts are said to be permanent because their balances run from year to year, continually showing the company’s up-to-the-moment financial position. Compare temporary accounts.

PETTY CASH FUND

A small sum of money, often $100, kept handy to cover incidental expenses such as office supplies and cabs. Monitoring petty cash is important, as it can be a source of “leakage” – unapproved borrowing, minor thefts, unidentified errors. Often, the fund is controlled by setting the rule that it will always contain exactly $100 in cash plus receipts. Thus, when the fund is opened, it contains $100 in cash. If a $15 item is purchased, the fund will contain a $15 receipt + $85 cash = $100 total. When cash gets low, the manager issues a cheque for the exact value of receipts. Thus, if there is $18 cash left, the receipts are removed, a cheque for $82 is issued, and an entry is posted debiting the appropriate expense accounts.

POSTING REFERENCE

Part of the audit trail; reference to an earlier step in the accounting cycle. For instance, ledger entries should refer either to the page number where the original journal entries can be found, or to specific journal entry serial numbers, depending on the accounting software used.

PREPAID EXPENSE

Goods or services that you have paid for in advance but not yet received. Recorded in the Assets section of the Balance Sheet. What you “own” is the right to receive goods or services at a future date. Common example: last month’s rent on an office, where you are paying for a month of occupancy in advance. You continue to show the prepayment on your Balance Sheet until you receive the last month of occupancy. At that point, you make a journal entry to transfer the amount to Expense. Compare deferred revenue.

PRIVATELY HELD CORPORATION

See Corporation.

PROFIT

An excess of Revenues over Expenses, meaning that a business has made money over a given period of time, most commonly one fiscal year. See also surplus.

PROFIT AND LOSS STATEMENT (P & L)

The standard commercial term for an Income Statement.

PROGRESSIVE TAXATION

A tax whose rate increases as the taxpayer’s income increases, so that wealthier people contribute a higher amount than the less wealthy. Progressive taxation considers individuals’ ability to pay when assessing how much they must contribute to the costs of government.

PROJECT BUDGET

See Budget.

PROJECT GRANT

A grant that helps to underwrite one single activity. Some project grants contribute to direct costs plus the project’s fair share of overhead; others assist only with direct costs. For contrast, see operating grant.

PROJECTED ACTUALS

A revised budget based on adding year-to-date actuals to anticipated results for the remainder of the year. Managers commonly do not update the budget column in their financial reports. Rather, they keep this as the benchmark plan, and add a projected actuals column showing the revised estimate. This facilitates variance reporting.

PROPRIETORSHIP (SOLE PROPRIETORSHIP)

A form of business organization where one person owns the business. There is no legal distinction between the business and the owner. The owner is responsible for earning the money, paying the bills, addressing the legal obligations and paying the taxes.

PROVINCIAL SALES TAX (PST, RETAIL SALES TAX)

The provincial counterpart of GST. In Ontario, a tax on goods, but not services, with some exceptions. Essential goods such as groceries are exempt. Certain services such as insurance and parking are included in the tax. Admissions sold by not-for-profit organizations are exempt in most circumstances (a service). Bar and gift shop sales are usually taxable (goods). Companies whose sales are taxable are required to register with the Ontario Ministry of Finance, which administers the tax.

PUBLICLY TRADED CORPORATION

See Corporation.

Q

QUALIFIED OPINION

An audit opinion indicating that the financial statements cannot be verified to generally accepted auditing standards, or that they have not been prepared in accordance with generally accepted accounting principles. The qualified opinion is contained in the auditor’s letter, and serves as a warning to readers. Many, if not most, cultural organizations receive a qualification related to box office and fundraising revenues, neither of which can be proven to the level demanded by generally accepted auditing standards. The opposite is an unqualified, or clean, opinion.

R

RECEIVABLES

See Accounts receivable.

RECONCILIATION

The process of comparing two sets of records to ensure either that they match, or that differences can be itemized, explained and documented. See balance (verb), bank reconciliation, reconciling items.

RECONCILING ITEMS

Items that cause acceptable variances between two sets of records. For instance, in the course of bank reconciliation, it is normal to find outstanding cheques – which you have issued, but that have not yet been cashed. These correctly appear in your records, but are absent from the bank’s. In order to balance your books to the bank statement, you must total outstanding cheques and subtract them from the bank’s balance. If the result matches your records, you’re reconciled. If not, you need to search for other reconciling items.

RETAIL SALES TAX

See Provincial Sales Tax.

RETAINED EARNINGS

Equity resulting from a company’s profits or surpluses. The company’s value increases each year it generates a surplus, and decreases whenever it goes into deficit. Typically shown on not-for-profit Balance Sheets as Net Assets. Also a synonym for Accumulated Surplus or Deficit. For contrast, see contributed capital.

REVENUE

Increases to a company’s resources resulting from day-to-day operations. In the business world this means the selling of goods and services. In the not-for-profit sector, it includes grants and fundraising. Revenues are reported on the Income Statement.

REVERSING ENTRY

To eliminate an error from the books, accountants can create an additional entry that reverses the effect of the error. By reversing rather than deleting, accountants preserve a complete record of all activity in the books. See also correcting entry. For example:

GENERAL JOURNAL

DateDescriptionDebitCredit
1-Nov-04To record cheque to supplier
Office Supplies150.00
Bank150.00
150.00To reverse previous entry and void cheque; supplies are back-ordered
Bank150.00
Office Supplies150.00

ROUNDING

The process of simplifying a number by converting the lowest place (or places) to zeros. For example, if we were rounding the number 82 to the nearest 10, we would need to evaluate whether we’re closer to 80 or to 90. The rule is to round up from 5, down from 4 – so, in this case I round down to 80. By contrast, if I were rounding 85 to the nearest 10, I would apply the rule and round up to 90. My original number, 82, contains two significant digits. My rounded number, 80, contains only one significant digit.

RUNNING TOTAL, RUNNING BALANCE

A tally calculated by showing the new balance of an account after every entry. In the general ledger, the column titled “Balance” shows the updated sum of debits and credits after each transaction. The same technique can be used for any list of numbers. For instance, a running total of sales at a company’s auction fundraiser:

Lot #DescriptionSold ForRunning Total
1Dinner theatre package$100$100
2Spa gift certificate$60 $160
3Sculpture$150$310

S

SIGNIFICANT DIGITS

When rounding, the digits that are retained are deemed significant digits. The places that are converted to zeros are considered insignificant. The following table illustrates the concepts of rounding and of significant digits:

This number has seven significant digits6,527,438
Rounded to six significant digits6,527,440
Rounded to five significant digits6,527,400
Rounded to four significant digits6,527,000
Rounded to three significant digits6,530,000
Rounded to two significant digits6,500,000
Rounded to one significant digits7,000,000

SIMPLIFY (NUMBERS)

By trading a certain degree of accuracy for greater convenience, we can make numbers more readily understandable. The most common way to achieve this in financial reporting is by rounding. For instance, 3,658 rounded to the nearest thousand becomes 4,000. A variation on this concept is to use fractions or percentages rather than numbers. For instance, if a company sold 3,069 seats of a total capacity of 4,300, readers or listeners might more quickly grasp “a bit over 70%” or “just below three-quarters.” Simplified numbers are not correct, per se, but they may be close enough for the purpose at hand. It is up to management to determine which is more important: accuracy or simplicity. (Note: for bookkeeping, it will almost invariably be wrong to simplify!)

SOCIAL INSURANCE NUMBER (SIN)

A nine-digit federal government identification number introduced in 1964 to register people for Employment Insurance. Since 1967, they have been used as file identifiers by the CRA. They are required for specific taxation purposes including income tax filing and payroll reporting. A SIN beginning with 9 is assigned to people who are in Canada on temporary work visas.

SOFT EXPENSES

Expense items where management generally has more discretion or flexibility, or less commitment. Promotional expenses are often regarded as soft because they often do not need to be committed till the last moment and can easily be cut. For contrast, see hard expenses.

SOFT REVENUES

Revenues that are less committed or more difficult to forecast accurately. Single ticket sales should probably be treated as a soft budget item until management receives some actual results. For contrast, see hard revenues.

SOLE PROPRIETORSHIP

See proprietorship.

A supporter, typically a business, who enters into a sponsorship agreement. The sponsor is not entitled to a charitable donation receipt, because they have not made a gift – they are paying for a benefit. Most sponsors would account for this as a promotional expense.

SPONSORSHIP

A business relationship where cash is traded for promotional benefits, such as logo placement or naming privileges (“The XYZ Corp. Santa Claus Parade”). Sponsorships exist in the commercial world, where for-profit events such as commercial theatre, Indy car racing and consumer shows (the Home Show, the Auto Show) seek sponsors to underwrite the cost of creating the event. Commercial sponsors seek a quantifiable return on their money – that is, they want to be sure they will reach their target audience and influence spending decisions. In the not-for-profit sector, the line between sponsorship and donation may seem blurred, because it can be hard for small organizations to prove the quid-pro-quo relationship. A sponsorship may include a component of giving, but the defining element is payment for promotional benefit.

STATEMENT OF OPERATIONS

Synonym for Income Statement, commonly used for not-for-profit organizations.

STATISTICS CANADA

The federal government department responsible for gathering statistics used to support economic planning as well as economic, social and cultural research, including the Census. Stats Can conducts various surveys to measure facets of cultural activity in Canada.

STRATEGIC PLAN

A document laying out the organization’s mandate, its short-, mid- and long-term objectives, and the key programs, services or other activities the organization will undertake to deliver on those objectives. See also business plan.

SUB-LEDGER

See Ledger.

SUBTOTAL

Actors$12,650
Designers$6,500
Director$5,000
Set$3,250
Props$950
Costumes$2,775

could be subtotaled as follows:

Actors$12,650
Designers$6,500
Director$5,000
SUBTOTAL: Artist Fees$24,150
Set$3,250
Props$950
Costumes$2,775
$6,975
TOTAL: Artistic Expenses$31,125

Detail is preserved; the subtotals help to break up the information. Contrast group.

SURPLUS

The standard not-for-profit term for a profit. An excess of revenues over expenses, meaning that the organization has made money over a given period of time, most commonly one fiscal year. The surplus appears on the bottom line of the Income Statement. See also Accumulated Surplus or Deficit.

T

T1 PERSONAL TAX RETURN

The CRA form used for reporting personal income tax. Due April 30 for the previous calendar year.

T2 CORPORATE TAX RETURN

The CRA form used for reporting corporate income tax. Due 180 days after the company’s year-end for the previous fiscal year.

T2 Short:

An abbreviated version of the T2 for companies with nil tax to report, including not-for-profit corporations.

T3010 CHARITIES RETURN

The CRA form used for reporting the activities of a registered charity. Due 180 days after the company’s year-end for the previous fiscal year. The Charities Directorate publishes on its website those portions of T3010s defined as public under the Income Tax Act.

T4

The CRA form employers issue to payrolled staff no later than February 28, stating earnings, EI, CPP, income tax, and other income and deductions for the previous calendar year. The form is prepared in quadruplicate. The employer keeps a file copy and sends a copy to the CRA with the T4 Summary. The employer gives two copies to the employee, who keeps one for their files and attaches the other to their T1. The CRA compares the two copies it receives to check for possible fraud.

T4 Summary:

The CRA form used to report total earnings and deductions for all payrolled staff. Amounts reported must balance to the installment payments made during the year. If the installments were short, the employer must pay up. If the installments were over, the employer must explain how the overpayment happened.

T4A

The CRA form that employers can issue to freelance staff no later than February 28 to report certain types of income. Most not-for-profit cultural organizations are not obliged to issue T4As. The CRA publishes a Guide detailing types of payments that require a T4A (e.g. payments where income tax was withheld at source, certain types of pension transactions, clergy housing benefits). Many companies use T4As as a convenient tool for giving freelancers a record of fees for the previous calendar year. The form is prepared in quadruplicate. The employer keeps a file copy and sends a copy to the CRA with the T4A Summary. The employer gives two copies to the employee, who keeps one for their files and attaches the other to their T1. The CRA compares the two copies it receives to check for possible fraud.

T4A Summary:

The CRA form used to report total amounts shown on T4As. As with the T4 Summary, amounts reported must balance to installment payments made during the year. If a company uses T4As to report freelance income but does not withhold income tax at source, no installment payments are needed and thus there are no balancing issues.

TAX CREDIT

A direct reduction to the amount of income tax payable. Charitable donation receipts yield a tax credit equal to a percentage of the donation amount. The percentage is set out by the federal government in the Income Tax Act and administered by the CRA. Since 1999, donors have received a credit of 17% on the first $200.00 of donations, and 29% thereafter.

TAX EXPENDITURE

Governments intervene in the economy by making grants and contributions to numerous activities they wish to encourage. They can also encourage activities by reducing or eliminating related taxes, thus foregoing tax revenue. Charitable donation receipts are an example of a tax expenditure.

TAX RECEIPT

See charitable donation receipt.

TEMPORARY ACCOUNTS

Revenue and expense accounts are said to be temporary because they are used to accumulate one year’s data at a time. Balances are zeroed out by the closing entry, which transfers the net surplus or deficit to the Equity section of the Balance Sheet. The accounts themselves continue to exist in the books, ready to start accumulating next year’s data. Compare permanent accounts.

TERM DEPOSIT

A form of investment where you deposit a fixed sum of money for a set time period (usually less than one year) and receive interest. See also GIC.

TERM LOAN

A form of bank loan where the total amount of the loan is advanced all at once, and the borrower pays it back in installments with interest.

TREASURY BILLS (T-BILLS)

A form of government bond sold on a discount basis. That is, if you want to purchase, for instance, $10,000 in T-bills, you actually pay a lesser sum of money, and receive $10,000 when the investment matures. The difference between the amount you paid (the discounted price) and the maturity price is effectively your interest, same as for bankers’ acceptances.

TREND ANALYSIS

A form of analysis that involves looking at three or more years’ worth of financial information to try to identify patterns that can be used to predict future behaviour.

TRIAL BALANCE

A proofing step in the accounting cycle. After the month’s transactions have been posted to the general ledger, the bookkeeper prepares a report listing all accounts and their closing balances. The closing balances are totaled. If total debits equal total credits, the trial balance is arithmetically correct, and you can assume your work is free of technical errors.

U

UNEARNED REVENUE

Revenue resulting from activities other than the sale of goods or services. Under standard accounting terminology as defined by the CICA, government grants and fundraising are considered sources of unearned revenue.

UNINCORPORATED ASSOCIATION OR CLUB

Anyone can form a club or association as long as its purposes are legal. The members must agree on their common purposes, and can establish an operating structure that suits their needs – either formal or informal. The purpose cannot be carrying out business with the goal of making a profit: legally, this would be a partnership. Unincorporated entities can be registered as charities if they fulfill the legal requirements. Many government grants are not available to unincorporated groups.

UNIT COST

Calculated by dividing total cost by number of units of activity. If a bottle of wine costs $12.00 and holds six servings, the unit cost per serving is $2.00. If a carton of 10 reams of copier paper costs $50.00, the cost per ream is $5.00. Units can be hours, people, servings, theatre seats, or any item that provides a unit of measurement. See also fixed and variable costs.

V

VARIABLE COSTS

Costs where the total cost fluctuates depending on the level of activity, but unit cost tends to remain fairly stable. For example, if an organization operates a bar for its patrons, the costs of drink, serviettes, napkins, etc. will rise the more people use the service, and fall if fewer people are interested. If business increases enough, suppliers may offer volume discounts, which would bring down the unit cost. For contrast, see fixed costs.

VARIANCE

The difference between two numbers, calculated by subtracting one from the other. Financial reports commonly include variance columns. For instance, a report showing Budget in the first column and Actuals in the second might use a third column titled Variance, indicating how the outcome varied from the plan. Managers can use this information to measure the success of their work, draw conclusions about company performance, and decide how to proceed.

VENDOR AGING

See Aging.

W

WORKING CAPITAL

An organization’s readily available resources, commonly calculated as current assets minus current liabilities.

Y

YTD (YEAR TO DATES)

Actuals for the period from the start of the current fiscal year to the present; often the latest complete month.