Terms and Definitions

Financial Management: Financial management is a necessary tool for supporting the organization's goals and objectives. Its purpose is to provide information that helps managers to make the organization's short- and long-term plans a reality. Financial management is about analyzing financial performance, identifying ways to use resources efficiently and finding creative ways to use existing resources to generate additional resources.

Accounting Principles: Accounting systems collect and record an organization's business transactions and produce thorough, accurate financial statements, which are essential for making sound financial management decisions. Accounting documents the organization's income, expenditures, assets, debt (how much and to whom) and what it is owed, by whom. Accounting rules and standards ensure the ethical and appropriate use of resources. The Generally Accepted Accounting Principles (GAAP) are widely applied standards that provide guidelines on how to measure, organize, record and report key financial information.

Budgets: A budget projects the costs, and, in many cases, the revenues of an activity, program or organization. It quantifies the organization's programmatic goals and objectives by guiding the allocation of financial and human resources. A budget can be used with periodic expenditure reports to review expected costs against actual spending, identify which programs are cost-effective, predict cash needs, determine where costs must be cut and provide input into difficult decisions, such as which programs to discontinue.

Assets: Assets are the property and resources an organization owns, with a value that can be quantified. A fundamental principle of accounting is expressed in the formula: Assets = liabilities + equity.

Liabilities - Liabilities are what an organization owes: the obligation to pay some amount of money or render a service.

Equity: Equity is the value of an organization at any given moment, expressed as the difference between assets and liabilities. It is expressed in the formula: Equity = assets - liabilities.

Balance Sheet: A balance sheet displays the assets, liabilities and equity of an organization. The balance sheet reflects a fundamental principle of accounting, expressed in the formula: Assets = liabilities + equity.

Revenue: Revenue is the money an organization receives in the form of fees, donations or grants. Revenue may come from clients, an organization's headquarters or external sources, normally in exchange for a product or service (including such products as proposals, workplans or reports).

Costs or Expenses: Costs or expenses are the financial outlays or resources used to deliver a product or service, or to implement a project or program. Such charges may be related to employing personnel, procuring supplies and maintaining equipment.

Income Statement: An income statement reports on revenue and costs or expenses resulting from the organization's operations during a specific period. The standard format lists all sources of income, subtracts itemized expenses and shows the net result ("bottom line"). When the bottom line shows a positive result, there is a net profit from operations; a negative result indicates a net loss.

Statement of Cash Flows: A statement of cash flows shows the inflow and outflow of cash within an organization. It covers cash flow in three categories: operating activities, investing activities and financing activities. It is a critical report, helping managers assess whether there will be sufficient cash on hand to cover expenditures, or if additional cash is needed to support operations.