What do we mean by terms such as "current assets" or "earned income"? Here are some financial resources (dictionaries, glossaries, and articles) that may be helpful:
CPA Journal Online (1994) on Net Assets
U.S. Dept. of Treasury, Office of Thrift Supervision, Glossary
A few key terms
Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.
On the Form 990, earned income is usually defined to include all revenue other than what is reported as contributions (private donations and government grants). This can be further divided between operating income and investment income.
On the Form 990, this includes ALL revenue items from Part I BEFORE deducting expenses. Thus, while TOTAL REVENUE includes only NET special event income (line 9c), gross receipts includes GROSS special event income (line 9a).
Also called "net worth" or "fund balance," net assets are divided into three categories under Generally Accepted Accounting Principles (GAAP) as developed by the Financial Accounting Standards Board (FASB).
Total revenue minus total expenses, this is an organization's "profit."
Permanently restricted assets
Funds restricted by the donor, not the board. Generally equated with endowments.
Temporarily restricted net assets
Funds restricted by purpose or time such as a contribution to be spent for a specific purpose over a 5-year period.
Unrestricted net assets
Funds accumulated from contributions, "profits" or "retained earnings" that it can use for any legally permissible purpose.
Board-designated funds or quasi-endowments
A board of directors may choose to set aside retained earnings or contributions at the end of the year for investments. Legally, the organization is free to change its mind and spend the funds at a later date, something it cannot do with Permanently Restricted Net Assets.
A few key concepts
Total versus net assets
Net assets equal total assets minus total liabilities. An example is the easiest way to illustrate the difference:
Total Assets($4 million):
Building - 1 mil.
Bank account/cash - 1 mil.
Stocks and bonds - 1 mil.
Accounts receivable (money owed to the organization) - 1 mil.
Mortgage on building - $500,000
Accounts payable (money owed for office supplies, etc.) - $10,000
Net assets (also called Fund Balance or Net Worth) - $3,490,000.
Net assets are further divided (since the mid-1990s change in accounting rules) into unrestricted, temporarily restricted (e.g., "grant must be used for following purposes...", etc.) or permanently restricted (an endowment which can't be spent; only the interest or other investment income generated by the endowment can be used).
On the Core files, only total assets, total liabilities, and total net assets are available. On the "Digitized Data" (the GuideStar-NCCS National Nonprofit Database) and on the SOI files, we have the 3 net asset categories as well as the detailed asset and liability categories.
Can an organization have a negative value for total assets?
Yes. If there is a bank overdraft in a checking account and no other assets to compensate, then an organization can either report their financial position as showing negative assets or enter the overdraft as an account payable, which is a liability.
Should beginning-of-year total assets and total liabilities equal the end-of-year total assets and liabilities for the prior year?
Yes, they should. However, there are a number of explanations for differences in the two sets of numbers. An organization's audit may take place after submission of its Form 990 and lead to changes in the balance sheet that would be reflected in subsequent year's beginning balance sheet items.
An organization's implementation of FASB 116 (the latest accounting standards). could lead to changes in the classification of assets or liabilities. In particular, reporting of deferred revenue and grants receivable is handled differently under the new standard.
Some organizations use financial terminology slightly different or more descriptive than that on the Form 990. The attached document lists those terms for assets and liabilities and indicates under which line item the amount would fall.