The basic unit of accounting records; a category for recording financial information. An account is a document divided into columns, with one column for adding to the account, a second for subtracting from it, and a third for the account balance. 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 revenue came from admissions versus fundraising or donations. It can also record a state of obligation between two parties, such as accounts receivable, accounts payable, deferred revenue and prepaid expenses. See also Account balance.

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 cancel each other out. The account analysis lists items that have not yet cleared. For instance, when you receive a grant now for a project happening next year, you record it as deferred revenue. As long as the project is still in the future, that grant belongs in your analysis of deferred revenue. Once the project starts, you move the grant into current year revenue and it clears from the deferred revenue balance. The process of preparing an account analysis consists of identifying active items. The list should be totalled, and, logically, the total of the active items must equal the closing balance of the account.

The final amount recorded in an account, calculated by totalling 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 the credit entries are greater, the account has a credit balance. See also Closing balance; Opening balance.

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. Because payables are typically due within a short time frame, they are recorded as current liabilities. An account payable is a type of accrued liability.

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. Because receivables are typically due within a short time frame, they are recorded as current assets. What you “own” is the right to receive payment for the goods or services you have provided. Some lenders may accept receivables as collateral. One of the characteristics of a receivable is that collection must be reasonably assured. If, by contrast, you had reason to doubt that your customer would ever pay you, you could hardly say that you have an asset! Accounts receivable should be reviewed periodically, and uncollectible amounts written off.

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, even if that person does not have professional credentials.

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

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 the Chartered Professional Accountants Canada (CPA Canada). CPA Canada was formed in 2013 by the merger of three former accounting associations. CPAs continue to be recognized by the designation they originally earned: CPA-CA, CPA-CMA or CPA-CGA. See also CPA-CA.

Assets = Liabilities + Equity. This equation describes the relationship among the three account classes reported on the balance sheet. The value of what we own balances to the amount we owe plus the residual value in the company. Or, to put it differently, the amount we borrowed plus the surplus we have accumulated over time together explain how we afforded our assets. In the not-for-profit sector, we can express the equation as Assets - Liabilities = Net Assets.

A method where revenues are recorded when they are earned, even if money has not yet been received, and expenses are recorded when they are incurred, even if payment has not yet been made. In almost all circumstances, the CPA Canada Handbook requires that this method be used to yield statements that accurately measure the company’s operations and state of obligation with others. For contrast, see also Cash accounting; Modified cash accounting.

To accumulate or increase over time, such as, for example, interest on a savings account. In accounting terms, to accrue is to record a transaction where revenues have been earned, or where expenses have been incurred, but the cash payment has not yet taken place.

Accrued liabilities capture obligations that have been incurred. Accounts payable are a specific type of accrued liability that arises from a supplier and that is evidenced by an invoice. Not-for-profits commonly encounter other types of accrued liabilities that might be given their own account or that might be recorded in a generic account titled “accrued liabilities.” These might include amounts that management knows are owed to a supplier, but where no invoice has yet been received. (In these cases, management may need to estimate the amount owing.) Accrued liabilities may also include a year-end payroll accrual, where year-end falls in the middle of a pay period, meaning that employees have earned compensation for some days in the old year and payday falls in the new year. Other amounts may arise, such as bonuses payable, interest on loans payable and, sometimes, amounts in dispute, where it is deemed prudent to record the expense at issue.

(Also known as accumulated amortization) – The total amount of depreciation recorded since a capital asset was purchased. The asset’s cost minus accumulated depreciation equals its net book value. See also Depreciation.

A synonym for “net assets.” The total amount a company has made (surplus) or lost (deficit) from its first day of operation up to the present moment. Equally, an accumulated surplus is an excess of assets over liabilities, resulting in positive net assets, and an accumulated deficit is an excess of liabilities over assets, resulting in negative net assets.

The real, to-the-penny financial outcomes for projects and for overall operations as recorded in your accounts. For contrast, see also Budget; Variance.

See grant advance.

A technical term used by the Charities Directorate of the Canada Revenue Agency to describe a benefit that a donor may receive from a charity in exchange for their financial support. For example, a patron may purchase a fundraising special event ticket, and the advantage arising from this might be a dinner and a performance. See also Donative intent; Split receipting.

A report that organizes accounts payable (vendor aging) or accounts receivable (customer aging) according to the number of days elapsed since an invoice was issued. Accounts 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.

To apply to a particular category. For instance, a cheque for $8,475 covering $6,500 for theatre rent, $1,000 for technicians and $975 for Ontario HST should be allocated to the general ledger accounts for theatre rent expense, technician expense and HST paid on purchases.

This term is used synonymously with “depreciation.” Properly, amortization refers to intangible items. See also Deferred capital contribution; Depreciation.

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. See also Annual meeting of shareholders.

The commercial corporation’s equivalent of an AGM. See also Annual general meeting (AGM); Shareholder.

A report on the past fiscal year, typically including the financial statements or a summarized financial report 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 can be sent to members, government funders, donors and sponsors.

A legal term that describes the nature of a relationship between two individuals or two entities. Colloquially, people maintaining arm’s length from each other are avoiding intimacy or contact. Legally, an arm’s length transaction means that the participants are acting independently of each other. Related persons may be individuals or corporations. Someone who holds a controlling interest in a corporation would have a non-arm’s length relationship with that corporation. An arts council that has an arm’s length relationship with the government (e.g., the Canada Council and most, but not all, provincial arts funders) makes funding decisions independently of the government. This protects freedom of expression, because the arts council can support organizations who might otherwise meet with government disapproval because of their opinions or actions. Members of boards of directors who are at arm’s length are not related by blood, marriage, common-law relationship or adoption. For application, see also Private foundation; Public foundation. See also Person.

A type of legal document for incorporating a business or a not-for-profit. Applicants must declare the basic characteristics of the company, including its name, the number of directors and the location of its head office. Applicants incorporating a commercial business must declare its share structure. See also Letters patent.

An agency of a government, often, but not always, operating at arm’s length, that distributes grants to individual artists and arts organizations. The council has its own board of directors responsible for granting decisions (who may be appointees of the government of the day). Arts council budgets are established by the government through the ministry or department to which the council reports.

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 networking, professional development, sectoral research, joint marketing initiatives, labour relations and advocacy. ASOs typically carry out their work by creating conferences and events, producing publications, and managing websites.

In Canada, the United States and other countries, groups of arts managers, private donors and other interested parties have come together from time to time to generate funding and other types of support to help arts organizations improve their capacity to sustain themselves in the face of challenges such as the erosion of traditional revenue sources.

What an organization owns; its property. Technically, assets are described as “economic resources.” Some common examples include money, accounts receivable, prepaid expenses, equipment, furniture and fixtures, and buildings. Assets are reported on the balance sheet. See also Current asset; Fixed asset.

See Unincorporated association or club.

SeeAudit; Review engagement.

Government authorities perform audits to determine whether an individual or a company is in compliance with regulations. In these cases, government auditors scrutinize records for possible irregularities, and they may impose penalties and interest on any unremitted amount. All branches of the Canada Revenue Agency conduct random audits, as well as targeted audits where some error or wrongdoing is suspected. Granting bodies (e.g., arts councils and ministries of culture) also conduct audits to confirm that public funds have been spent according to the agreed terms and conditions.

A review of an organization’s accounting records and overall accounting practices undertaken by a chartered accountant (CPA-CA). The result is a set of formal, annotated financial statements, covered by a report giving the auditor’s opinion as to whether the financial statements fairly reflect the organization’s financial position and operating results. The auditor evaluates materiality and risk for the organization and performs a series of testing procedures designed to verify that the accounts have been maintained according to generally accepted accounting principles (GAAP) and that there are no material errors in the financial statements. In Canada, most foundations and government funders require audits from recipients of substantial grants and contributions. See also Qualified opinion. For contrast, see also Compilation engagement; Notice to reader; Review engagement.

A series of annotations in the bookkeeping records linking the steps in the accounting cycle. In the days of handwritten records, the bookkeeper recorded the number of the cheque used to pay a bill on the paid bill. The cheque number was also recorded in the journal. Thus, the paid bill, the cheque and the journal entry were all linked, facilitating the auditor’s review. Electronic records also offer avenues for associating originating documents with payment methods and entries to the books.

A professional who conducts an audit.

The cover letter to a set of audited financial statements, addressed to the members or to the board of directors, stating the methods followed, the auditor’s and management’s responsibilities, and the auditor’s opinion on the financial statements. See also Qualified opinion.

The average – or arithmetic mean – can be described as the central tendency of a group of numbers. To calculate it, add the numbers and divide by how many numbers there are. Let’s say your last five workshops yielded these attendance figures:

Workshop 1: 37

Workshop 2: 40

Workshop 3: 41

Workshop 4: 31

Workshop 5: 28

You need to take the sum of all attendance figures and divide by five workshops. This gives you an average of 35.4 attendees per event. See also Median.

See Account balance; Closing balance; Opening balance.

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

The primary financial statement, reporting on an organization’s assets, liabilities and equity. It is commonly described as providing a snapshot of the company’s financial health as at a certain date. Since the values reported on the balance sheet may change with each transaction, a more apt metaphor might be a freeze-frame, as from a movie. The balance sheet states the company’s financial position – how much it owns, how much it owes, and how much net value remains in the company on the report date. The balance sheet is in balance if it fulfills the accounting equation Assets = Liabilities + Equity. Note that “balance sheet” is a term commonly used for commercial business; not-for-profits more commonly use “statement of financial position.”

As in, a journal entry, a trial balance or a 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 incorrect.

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, you can balance accounts payable by comparing the total recorded in the general ledger account to the sum of the unpaid bills. See also Bank reconciliation.

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.

*Balanced – 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.

The process of comparing your record of payments, 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 when 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. See also Balance; Balanced.

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.

Bankruptcy is a legal proceeding that an individual or a corporation may undertake either voluntarily or involuntarily as an avenue for resolving insolvency. To start the process voluntarily, the directors of the corporation consult with a Licensed Insolvency Trustee (LIT), who can help them explore available options for settling their financial difficulties. If bankruptcy is the chosen path, the LIT files the necessary documents with the Office of the Superintendent in Bankruptcy. Once the corporation has been assigned into bankruptcy, the trustee takes possession of its assets, liquidates them (that is, converts them to cash by selling them) and distributes the proceeds to creditors. If, for example, the value of the company’s assets amounts to 25% of its debts, creditors can expect to receive twenty-five cents for every dollar they are owed. Creditors are ranked, with secured creditors receiving compensation ahead of unsecured creditors. If the corporation owes payroll source deductions, those amounts must be paid to the CRA before other creditors receive anything. The same process may happen involuntarily to an insolvent corporation if a creditor takes court action against it. Bankruptcy does not automatically close a corporation. The corporation continues to exist as a legal entity until it is legally dissolved. However, at the end of the bankruptcy process, all debts have been settled and all assets have been expended, so the corporation is financially “empty.” For comparison, see also Insolvency.

For certain taxes (e.g., income tax and Canada Pension Plan) the first portion of earnings is treated as exempt, or free of tax.

The management practice of taking regular periodic measurements of financial and statistical results and using them as the basis for analysis and decision-making. Successful use of benchmarking depends on taking the same measurements over consistent time periods (e.g., monthly, quarterly, annually). By comparing one period to another – and especially by building up a picture of the organization’s trends over a span of time – managers can discern trends and assess strengths and weaknesses. These observations can offer significant guidance for the development of future plans.

On a practical level, this term is often used interchangeably with “invoice.” In some contexts, it is given a distinct meaning. For example, QuickBooks, a dominant player in the accounting software market, uses “bill” to refer to a document from a vendor itemizing amounts you are expected to pay for goods and services you have purchased. See also Invoice.

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, and not the staff, are legally responsible for the organization. They must govern in the interests of the corporation, not in their own interest. Directors of not-for-profit corporations must be volunteers. In contrast, directors of commercial corporations are typically compensated for their work.

A form of investment where you lend the issuer a sum of money for a fixed time period at a fixed interest rate. Bonds are frequently used by governments and major corporations. For comparison, see also Equity; Share; Stock; Treasury bill (T-bill).

The value recorded in the accounting records, based on cost. Book value is an accounting measurement, and it may vary significantly from market value (i.e., what you could get by selling the item). 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 the asset) less any depreciation.

The clerical aspect of accounting, involving recording transactions, performing reconciliations and account analyses, issuing reports, and completing other technical tasks. In practice, many bookkeepers work at a far more advanced level. They often review financial statements, interpret them to management and provide support to financial decision-making, such as supporting budgeting and cashflow planning, preparing analytical reports, and helping to identify appropriate courses of action.

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

A financial plan. Budget preparation is a key element of sound financial management. The budget not only sets out a game plan, it also provides a benchmark against which results can be measured. Prudent managers regularly examine the variance between budget and actuals as an internal evaluation and planning tool. Funders generally require a budget to accompany grant applications. At the end of the project, they require a report comparing the budget to the actual results and explaining significant variances. See also Capital budget; Cash budget; Operating budget; Project budget.

In the commercial realm, the business model describes how a business plans to make money. A not-for-profit’s business model describes how the organization creates, delivers and captures value – including both financial and social value. The model addresses revenue sources, products or services, audience, marketing plan, anticipated expenses and more – all of the elements that contribute to success and sustainability. When creating a business model, it’s important to be clear about the assumptions underlying the model, such as, for instance, about the community you serve or about the market for your artistic product. Over time, things tend to change, and assumptions that were once spot-on may become invalid, causing your business model to fail.

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 = GST/HST, RR = charitable registration. A further four-digit suffix identifies sub-accounts for corporate divisions. Most not-for-profit arts organizations have only one division. An organization with payroll, GST/HST and charities accounts with the CRA would have the following business numbers: 12345 6789 RP 0001, 12345 6789 RT 0001 and 12345 6789 RR 0001.

Commonly, the business plan is 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.

A collection of rules passed by the board of directors, laying out how the company will govern itself. Bylaws address 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 bylaws, and how to dissolve the organization. Companies commonly seek legal advice for drafting or revising their bylaws to ensure that they follow legal requirements.

Government funders, who review hundreds of financial statements per year in support of grant applications, have a vested interest in encouraging applicants to aim for excellent standards of report preparation. Since 2009, the Canada Council, provincial funders, and certain municipal and private funders have collaborated to create a system called CADAC, Canadian Arts Data/Données sur les arts au Canada. On a practical level, CADAC has negotiated standardized financial and statistical grant application forms with its member funders. It has made these forms available online to applicants, which has significantly simplified the process of preparing multiple applications and created a centralized quality-tested database of financial and statistical data on the sector. As of 2023, CADAC is used only for operating grant applications, not for project grants.

A federal crown corporation that, following certain terms and conditions, 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 $100,000 are likely insured against bank failure. Canada’s provinces maintain comparable deposit insurance corporations to protect deposits in credit unions and caisses populaires.

The federal government’s universal pension scheme. Working Canadians between the ages of 18 and 70 must participate, with some exceptions, and with certain additional rules for employees between 60 and 70 years old. Employees’ CPP contributions are deducted from their pay up to an annual maximum, according to rates prescribed by the government. Employers match this contribution dollar for dollar. Self-employed individuals must pay both the employee and the employer halves. The amount an individual receives when they retire depends on the contributions they made during their working years.

Canada’s tax collector. The federal government department responsible for administering tax laws, including the Income Tax Act, the Excise Tax Act (for GST/HST) and various other acts relating to taxation. The CRA also administers economic and social benefits.

A cheque is cancelled, or cleared, when the bank has transferred funds from the drawer’s account 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. See also Cheque.

As a generic term, capital refers to wealth in the form of money (cash, investments) or assets (durable assets, such as buildings, and intangible assets, such as accounts receivable). More broadly, the term “capital” can be used to describe the resources an organization can apply towards new investments. In this sense, capital might include the organization’s ability to borrow funds and the net assets available for new initiatives. Additionally, the term is often used to describe money one has invested (e.g., “I’ve sunk a lot of my personal capital into shares”) or money one has received as an investment (e.g., “We’ve worked hard to raise enough capital to renovate the gallery”). In the commercial world, investors expect to see a return on their capital. Not-for-profit organizations have no ownership structure and do not generate a return for investors but tend to use the same language in a colloquial way. See also Financing; Working capital.

See Asset.

A project budget for a capital asset (fixed asset) purchase. See also Budget; Cash budget; Operating budget; Project budget.

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

The returns earned when an investment is sold for more than its purchase price. If you purchase shares in a company at $10 each and you later sell those shares for $12 each, you have made a capital gain of $2 per share.

A term used with reference to capital, or fixed, 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 statement of operations. Typically, capital assets are depreciated (i.e., the cost of their purchase is spread over their useful life). This means that the cost of the asset is “parked” on the balance sheet, and gradually moved to expense on a schedule that approximates the consumption of the value of the asset. For instance, a computer might be capitalized and expensed over three years, and a building over forty years. For a fuller explanation, see also Depreciation.

A method where revenue is recorded when money is deposited to the bank, regardless of when it was earned, and expense is recorded when payment is issued, regardless of when the expenses were incurred. In most situations, CPA Canada regards this method of accounting 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 also Accrual accounting; Modified cash accounting.

A budget used to forecast cash needs, incorporating cash in and cash out from all sources. The contents of a cashflow are different from the contents of an operating budget. The operating budget addresses revenues and expenses on an accrual basis. The cashflow only considers deposits and withdrawals at the bank, regardless of which fiscal year they pertain to. See also Budget; Capital budget; Operating budget; Project budget.

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 during each period. Other sources of cash, such as collection of accounts receivable, and other uses of cash, such as payment of accounts payable, are added to revenues and expenses. 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. Management must set a reasonable target bank balance, sufficient to allow for contingencies. If the cashflow projection shows a bank balance below this target – or, worse, a negative bank balance – management must review its plans and determine how to solve the problem.

An official document issued to a donor containing the name and address of the charity, the charitable registration number, the place where receipt was issued, the date when the donation was received, the date when the receipt was issued, the name and address of the donor, the dollar amount of a cash gift or fair market value of a gift in kind, and the signature of a responsible individual authorized by the charity to acknowledge donations. Receipts must have a serial number and clearly state that they are an official receipt for income tax purposes. 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 their T2 corporate return to claim a tax credit. See also Gift; Tax credit.

The Income Tax Act recognizes different subsets of organizations that meet the test of being a charity. Per the Canada Revenue Agency’s Charities and giving glossary, a charitable organization “primarily carries on its own charitable activities, but may also gift funds to other qualified donees, (e.g., registered charities).” Charitable organizations generally receive their funding from a variety of donors who are at arm’s length. Additionally, 50% of the members of the board of directors must be at arm’s length from each other. Most Canadian arts organizations are charitable organizations. For contrast, see also Private foundation; Public foundation.

The Canada Revenue Agency branch that administers charities according to the provisions of the Income Tax Act. Core functions include evaluating requests for charitable registration, administering rules for issuing charitable donation receipts, and receiving the annual T3010 charities return. The Charities Directorate maintains an extensive website covering regulations, definitions, interpretations and the publicly available sections of charities’ T3010s for the past five years. Prior years are available by request. Note that the website www.charitydata.ca has made T3010 open-source data available back to 2003.

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 tend to fall within the last group and under the banner of education. All of a charity’s resources must be devoted to its charitable purposes. This means that it can spend money only in two ways: on its own charitable activities or as gifts to other qualified donees. It cannot benefit an individual or a specific group; benefits must be available to the community at large. Charities are exempt from paying income tax and are entitled to issue charitable donation receipts. Each charity is assigned a charitable registration number – that is, a business number with the suffix RR.

A list of all accounts in general ledger order (assets, liabilities, net assets, revenues, expenses). 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 follows:

The professional accountancy organization responsible for defining Canada’s accounting standards and publishing them in the CPA Canada Handbook. Members of CPA Canada who hold a CA designation (chartered accountant, or CPA-CA) are the only accountants licensed to perform audits.

An ancient financial instrument, with origins as early as 300 BCE. A cheque is a document that orders a bank (the drawee) to pay a specific amount of money in a specific currency from the person writing the cheque (the drawer) to the named recipient (the payee). The drawer must have a transactional account (often known as a chequing account, a current account or an operating account) with the bank. The cheque is dated, and the drawee must not honour the cheque until that date has arrived. After a certain amount of time (typically six months for Canadian banks) the cheque is deemed to be “stale” and no longer valid. Cheques became popular because they allowed transactions to happen without the need for carrying large amounts of cash. By the late 20th century, cheques were the dominant form of commercial instrument, with usage peaking in the 1990s. Although cheques are still common in North America, many countries have phased them out. Usage is rapidly declining in Canada, where various online methods, including debit and credit cards and electronic funds transfers are becoming more common. See also Cancelled cheque.

See Payment requisition.

To put things into groups. Accounting excels at this! One of the fundamental activities of accounting is creating order and meaning by assigning things to groups. We classify revenues and expenses (and assets, liabilities and net assets) into account categories. To standardize processing, transactions are classified into journals (e.g., purchases distinct from sales, distinct from payroll). The accounts themselves are classified into five classes. The more skillful you are at identifying meaningful commonalities, the more efficient your system will be, and the more useful your reports will be. Adept classification finds a way to generalize (in the sense of finding the “genre” of things) without either over-simplifying or nit-picking.

In accounting, an item is cleared when it has been dealt with. An account payable is cleared (and the liability becomes zero) when you pay it. An account receivable is cleared when you collect the balance owing to you. An outstanding deposit or payment clears when it is processed by the bank, and the amount is added to or deducted from your account balance. See also Outstanding.

The account balance at the end of a period, such as month-end or the end of a fiscal year.

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 net assets. 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.

See Unincorporated association or club.

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

A non-hierarchical type of organizational structure, most likely to fit within the legal definition of an unincorporated association. In the theatre community, collectives are recognized as structures within which groups of artists can come together to create shows on an ad hoc basis. The Canadian Actors’ Equity Association (CAEA) offers a contract allowing its members to form collectives on a revenue-sharing basis, unlike the standard contract where an engager (the theatre company) hires the artists.

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

A service performed by an accountant where the organization’s accounting data is compiled into formal financial statements without any analysis, testing or verification. This level of service is insufficient for most Canadian arts organizations, because funders who require formal financial reporting generally require some degree of assurance that the statements are accurate and have been prepared according to generally accepted accounting principles (GAAP). See also Audit; Notice to reader; Review engagement.

This term denotes adherence to applicable laws, regulations, and terms and conditions. Arts organizations must comply with the Income Tax Act, Excise Tax Act and other acts governing payroll, GST/HST and charitable status. They must also comply with the terms and conditions of government funding. In the non-government realm, organizations must maintain their accounting records in compliance with generally accepted accounting principles (GAAP).

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. By contrast, investment gains are not recorded until the investment is sold and the cash is in hand.

A competent manager will formulate a budget or other plan based on what they can reasonably foresee. It is often deemed prudent to build in an additional allowance for unforeseeable events or circumstances to create extra “slack” for expenses arising from accidents, miscalculations and misfortunes. Within an operating budget, you can create the effect of a contingency allowance by “highballing” (over-estimating) each line item. Alternatively, you can forecast each line item as accurately as possible and add a contingency budget line. Some government grant application forms include a contingency line, encouraging applicants to add such an allowance to their funding request. There is no such thing as a contingency expense account in your books. If you experience cost overruns – effectively dipping into your contingency allowance – you record the expense to the appropriate category.

An agreement, usually in writing, that is intended to be enforceable by law. A verbal or “handshake” agreement can still constitute a legal contract, but a written agreement – because it is documented – helps the parties to avoid disputes arising from misunderstandings. At minimum, a contract must involve an offer, an acceptance, an intention to create a legal relationship and a consideration (something of value that the parties intend to exchange, usually money).

Owners of a commercial business, whether they are sole proprietors, partners or shareholders of a corporation, are expected to contribute to their business’s 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 also Retained earnings.

A type of government funding. According to the federal government, contributions are transfer payments that the government provides to individuals or organizations for activities that meet eligibility criteria set by the funding program. In order to receive funding and be reimbursed for specific costs, recipients need to meet certain performance conditions. The purpose of the funding and the conditions under which it is given are laid out in a legally binding contribution agreement (CA). The government can also audit the recipients’ use of funding. For contrast, see also Grant.

Under the Canada Pension Plan (CPP), contributory earnings are those to which the CPP rate is applied. This is calculated as pensionable earnings minus the basic exemption amount. In 2023 (and for many years in the past), the first $3,500 of earnings each year are exempt from CPP contributions. Contributory earnings have increased over time, because each year’s maximum pensionable earnings amount has increased.

A form of organizational structure. In Canada, co-ops can be organized commercially or as not-for-profits, but in either case they are mandate-oriented and have a membership at the heart of their governance structure. Co-ops are jointly owned by their members and exist to serve their members’ needs. Membership may be limited to a small group of people, as in the case of a housing co-op, or it may be broadly defined, as in the case of Co-op, a well-known western Canadian co-operative reporting over 1.9 million members (as of 2022). Artist co-ops may assist members with studio space, sales opportunities and other shared services.

A form of organization. A corporation exists as a legal entity; that is, a corporation is a person in the eyes of the law. It earns its own money, pays its own bills, can own property, can sue or be sued, 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 also Partnership; Proprietorship. See also Person.

A business or commercial corporation. Shares serve as the ownership mechanism. Profits may be retained within the corporation for future needs or apportioned amongst the shareholders according to how many shares they own. Profits allocated to the shareholders are called dividends. 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). See also Privately held corporation; Publicly traded corporation.

A not-for-profit corporation. There are no owners and, therefore, 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.

To eliminate the effect of an error on the books, accountants can create an entry reallocating an amount from one account to another. Suppose an organization received a $10,000 government grant, and the bookkeeper mistakenly posted it to sponsorships. The following illustration shows the erroneous entry and the correcting entry. See also Reversing entry.

GENERAL JOURNAL

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

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.

The consideration given up in order to acquire something. This usually means the price, in money, paid to own something. However, it could refer to barter or any other value given up as part of a transaction.

Members of CPA Canada who hold a chartered accountant (CA) designation are the only accountants licensed to perform audits. See also Accounting designation.

A business term describing an arrangement that allows an entity to borrow from a lender or a supplier. Thus, an entity may have a loan or a line of credit with the bank, where their “credit” is the amount they are entitled to borrow. For example, a company may have credit of $25,000 with the bank, meaning an agreement under which they are allowed to borrow up to $25,000, with specified interest and repayment terms. In the same way, an entity may have credit with a supplier where their “credit” is the value of goods or services they are entitled to receive before payment must be made. For example, if I have a credit account with a supplier who has given me an approved limit of $1,000, I can place orders for up to $1,000 worth of goods, receive them now, and pay later (but within the agreed time limit). Any orders beyond my credit limit must be paid on the spot.

A technical term meaning the right-hand side of a general ledger account. For liability, equity and revenue accounts, you add transactional amounts on the credit side. For asset and expense accounts, you subtract transactional amounts on the credit side. See also Debit (DR).

A person or organization to whom you owe money. If you have borrowed from the bank, they are your creditor. In periods of financial need, arts organizations may seek to borrow from others, such as board members or funders. They, too, would become creditors if they lent money. If you have unpaid bills from your suppliers, your suppliers are also creditors (until the bills are paid). The term is often used interchangeably with lender.

Refers to the current accounting period, that is, the current fiscal year. This term is also used to refer to the upcoming twelve months. For application, see also Current assets; Current liabilities. See also Asset; Earnings; Liability.

A bank account designed for numerous daily deposit and withdrawal transactions (in contrast to a savings account). A current account is also known as a chequing account.<0/p>

An asset that will be consumed or converted into cash within a year. 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. See also Asset; Fixed asset.

Earnings for the current fiscal year. In business, current earnings are itemized in the equity section of the balance sheet. Because not-for-profits commonly use software designed for business, not-for-profit managers are accustomed to seeing this term on the statements produced from their books. See also Earnings; Retained earnings.

A liability that generally must be paid off within a year. Common examples include general bills to be paid and bank lines of credit. See also Liability; Long-term liability.

The amount of current assets divided by the amount of current liabilities. It is a measurement of a company’s capacity to meet its short-term obligations. If an organization has current assets of $20,000 and current liabilities of $20,000, its current ratio is 100%. For every dollar of short-term debt, it has a dollar of assets. A current ratio greater than 100% means that the organization’s short-term resources exceed its short-term obligations. For example, an organization with $30,000 in current assets and $20,000 in current liabilities has a current ratio of 150% – or $1.50 for every $1.00 of debt. A current ratio less than 100% means that the organization’s short-term resources are insufficient to cover its short-term obligations. See also Working capital.

See Aging.

Used by the Canada Revenue Agency to determine the portion of a gift eligible for a charitable donation receipt. A small thank-you acknowledgement (e.g., “Donors who give $100 or more will receive a T-shirt”) has no impact on the receiptable amount of the gift as long as it meets the de minimis rule. If the advantage (e.g., the T-shirt) is not worth more than 10% of the gift to a maximum of $75, the donor receives a charitable donation receipt for the full amount of their gift. For comparison, see also Nominal.

A technical term meaning the left-hand side of an account. For asset and expense accounts, you add transactional amounts on the debit side. For liability, equity and revenue accounts, you subtract transactional amounts on the debit side. See also Credit (CR).

Something that is owed, usually money. For instance, if I borrow $10 from you, my debt is $10. I could also say that I am in debt to you for $10. “Trade debt” refers to goods or services that I have received now, which I will pay later; that is, items that I have purchased on credit. In my accounting records, my trade debt is recorded as accounts payable. You could say that all debts are liabilities, but not all liabilities are debts, because corporations may have additional types of financial obligations.

A person or organization that owes money. For example, if I borrow $10 from you, I am a debtor. (You are a creditor.) A trade debtor is a company that owes money to its suppliers. That is, the company has received goods or services that it has not yet paid for. For comparison, see also Accounts payable.

Often abbreviated as DCC, deferred capital contributions are a long-term liability that are tied to capital assets. Not-for-profits typically seek grants and donations to enable them to complete capital projects such as purchasing buildings and equipment and carrying out renovations. The capital cost is depreciated over the estimated useful life of the asset. The related funding is amortized on the same basis. Each year, a portion of the deferred capital contribution is recognized as revenue. General journal entries are used as the mechanism for recognizing this revenue. Periodically (e.g., monthly or annually) the appropriate portion is credited to revenue. The offsetting amount is debited directly to the deferred capital contributions account.

Payment received before the work has been done (e.g., a grant advance). Deferred revenue is recorded in the liabilities section of the balance sheet. Deferred revenue constitutes a debt because you owe the person who paid you either the goods or services or project that you promised them, or you owe them the money back. At the point when you are carrying out the work, you make an entry transferring the amount to revenue: this entry recognizes the revenue. For comparison, see also Prepaid expense.

The standard not-for-profit term for a loss. A deficit is an excess of expenses over revenues, meaning that the organization has lost money over a given period, most commonly one fiscal year. The deficit appears on the bottom line of the statement of operations. See also Accumulated surplus or deficit.

The accounting practice of spreading the cost of a capital asset over its estimated useful life. In the year of acquisition, the cost of the item is recorded as a capital asset. Each year, a portion of the cost is recognized as expense. General journal entries are used as the mechanism for expensing capital assets. Periodically (e.g., monthly or annually) the appropriate portion is recognized as a debit to expense. The offsetting credit is recorded as accumulated depreciation. Different depreciation methods are available. The simplest, straight-line depreciation, divides the cost by the estimated number of years, resulting in the same expense being recorded each year throughout the estimated life of the asset. The term is used synonymously with “amortization,” although, properly, depreciation refers to tangible assets. See also Accumulated depreciation; Book value.

Items that arise from a particular project, program or service. The company would not gain these revenues or incur these expenses were it not for this activity. See also Indirect revenue or expense; Overhead.

Most commonly this term is used to refer to a member of a board of directors, elected by the members of a 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, must be members of the organization and must not be bankrupt. In other contexts, the term can describe a senior staff role (e.g., executive director or director of finance.)

In arithmetic, the dividend is the amount you want to divide up. It is divided by the divisor to yield the quotient. In the expression 45 ÷ 9 = 5, the dividend is 45. In the world of investments, the dividend is the share of a corporation’s profits that is allocated amongst the shareholders.

Synonym of “gift.”

A legal term describing the conscious intention to make a gift. This term is use by the Charities Directorate of the Canada Revenue Agency (CRA) to define circumstances where a charity can issue a charitable donation receipt. The courts, for instance, might punish a wrongdoer by declaring that they must make a payment to a charity. In such a case, no donative intent exists because the payment is not voluntary. If someone gives money to a charity and receives an advantage in return, CRA sets parameters for evaluating the donative intent, and hence the receiptable amount. A nominal thank-you acknowledgement from a charity to a donor has no bearing on donative intent. See also De minimis rule; Split receipting.

The recipient of a donation. See also Qualified donee.

The giver of a donation. In Canada, donors are entitled to receive a charitable donation receipt equal to the receiptable portion of their gift. For contrast, see also Sponsor. See also Charitable donation receipt; De minimis rule; Split receipting.

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.

The initial payment for an item purchased on credit, typically a house or building.

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

In the business world, after-tax net profit, also known as the bottom line. Earnings are calculated as revenues minus expenses. They are equivalent to surplus in the not-for-profit sector. See also Current earnings; Retained earnings.

The rate of tax that you actually pay on your income. This is a blended rate: the result of applying multiple income tax rates to multiple tax brackets. To calculate your effective tax rate, you need to know two things: your taxable income and the total income tax you paid. Divide total income tax paid by taxable income, and express the result as a percentage. See also Marginal tax rate.

The electronic transfer of money from one bank account to another, without the involvement of bank staff. This method of payment is considered more secure than cheques.

In Canada, this term describes a particular type of relationship between payer and worker. The Canada Revenue Agency publishes a guide defining characteristics of an employment relationship (Employee or Self-Employed). Briefly, the employer has the ability or authority to control what work will be done and how it will be accomplished; typically, the employer also provides the necessary tools. The worker generally does not have the option to subcontract work or hire assistants and undertakes no financial risks relative to their employment. For contrast, see also Freelancer.

The payer in an employer-employee relationship. The term “payer” is a neutral term that does not imply any legal obligations (e.g., for managing source deductions.) See also Employee.

A tax levied in some provinces (e.g., Ontario) to fund provincial health care. The tax is levied on organizations with employees where the total payroll exceeds a certain threshold. Thus, small employers with low payroll costs are exempted from the tax. The tax is calculated as a percentage of the payroll over that threshold.

The federal government’s job protection insurance scheme. Employees’ annual premiums are calculated by applying the prescribed rate to gross earnings, up to an annual maximum. Employers contribute $1.40 for every dollar paid by the employee. The employer deducts the employee premium from each paycheque 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 generally ineligible for coverage.

Colloquially, to endorse something is to approve of it publicly (e.g., “I endorse Joe Blow’s candidacy for mayor”). Financially, the term commonly describes signing the back of a cheque in order to cash it or deposit it. By signing, the payee acknowledges that they have received the amount of money specified on the face of the cheque.

The record of one transaction, consisting of balanced debits and credits. See also Correcting entry; Reversing entry.

In the context of a balance sheet – 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.

In the context of investing – A share of ownership in a company, as in, “I used my savings to purchase an equity position in IBM.” When an investor purchases equity in a company, they purchase a percentage of the company and become entitled to receive a share of the company’s profits, known as a dividend.

Decrease 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 statement of operations.

The act of recording an item in an expense account. For example, “the gallery capitalizes equipment purchases greater than $1,000, and expenses smaller purchases.” The parallel usage does not exist for any other class of accounts. You can’t “revenue” a grant, or “asset” a bank deposit, or “liability” a debt, or “equity” a fund.

A contribution with stipulations imposed by the funder, donor or sponsor. The fund can be used only for these purposes. See also Internally restricted fund; Restricted fund.

Here is the Canada Revenue Agency’s definition, from their online Charities and giving 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 and split receipting rules are based on the FMV of an advantage to the donor. CRA applies this definition when adjudicating whether a charity has issued receipts properly. For contrast, see also Book value. See also Market value.

An obligation to act in the best interests of another person. Board members have a fiduciary duty towards the organization they serve, even at the expense of their own interests. The duty of care requires them to be informed and to act with competence and diligence, in the manner of a “reasonably prudent person.” Under this heading, they have a duty of obedience to applicable laws and regulations and to the organization’s governing documents and bylaws. The duty of loyalty requires them to act honestly and in good faith for the benefit of the organization. This includes not profiting from their role. Fiduciary duties cannot be delegated to others, except at an administrative level. For example, boards of directors can delegate practical work to staff, while retaining governance responsibility. Boards can also engage professional expertise, such as lawyers and accountants, to advise them on legal and regulatory matters.

A field of activity involving the management of money. It includes investing, lending, borrowing, budgeting, planning, evaluating risk and return, and the like.

To finance something is to provide funding for it (e.g., “the federal government financed our renovation”) or to seek funding for it (e.g., “we are financing the renovation through a vigorous fundraising campaign”). See also Financing.

A 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. For example, “the orchestra’s financial position was greatly strengthened by three successive years of surpluses.” The statement of operations, notes to the statements and other supporting materials can assist with clarifying the position.

Formal financial reports including the balance sheet, statement of operations, 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.

The process of raising funds for a venture. May also refer to the funds raised. For example, as a process, “Financing proved to be the most challenging phase of our renovation project.” And, as a noun, “The bulk of the financing was ultimately provided by the provincial government.” See also Finance.

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” and “capital” are used interchangeably. These are assets that retain their value for longer than a year, that are generally used to produce the goods and services the company sells, and that typically represent a significant investment for the company. Common examples of fixed assets are equipment, major furniture items, a building. See also Asset; Current asset.

Cost where the total cost tends to remain stable, but the unit cost varies depending on level of activity. For example, a certain theatre charges $5,000 a week for rent. If the theatre holds 300 people, and the renting company offers seven show per week, the total capacity is 2,100 seats per week. If the renter sells out, its unit cost per seat is $5,000 ÷ 2,100 = $2.38.

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

If the renter sells only 25% of its tickets, the fixed cost is still $5,000, but the unit cost rises to $5,000 ÷ (2,100 x 25%) = $9.52.

Clearly, efficient use of fixed costs is important for sound financial management. Other examples of fixed cost are salaries and monthly phone and internet service. For contrast, see also Variable cost.

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 Canada Deposit Insurance Corporation and are therefore considered safe. In Canada, government bonds are generally considered a safe investment. The safety of corporate bonds depends on the stability of the issuer. See also Guaranteed investment certificate (GIC); Term deposit.

When grant amounts remain the same year over year, they are said to be flatlined. Arts councils can often give applicants a sense of what to expect from their adjudication, based on the funds available and the number of applicants. If the arts council itself is working with the same budget as last year, then an applicant that is flatlined may be in a fairly good position. Companies that receive a weaker adjudication may receive cuts, and those with an above-average rating may receive an increase.

A pool of cash used to make change for cash sales (e.g., box office or bar sales). The expectation is that the float will always contain the same amount of money, and that it will be maintained in small and useful denominations. For example, if you were charging $15 admission to a workshop, you would make sure you had lots of $5 bills to give as change to people paying with a $20 bill. To maintain good financial control, the float should be counted at the start and end of each shift. Any cash-short or cash-over errors should go to the bank deposit so that the float always stays at the agreed amount. For comparison, see also Petty cash fund.

The Income Tax Act recognizes different subsets of organizations that meet the test of being a charity. Foundations are commonly understood to raise money, invest it and use the proceeds to fund other charities – although the rules pertaining to private foundations and public foundations add some complexity to this picture. See also Private foundation; Public foundation.

A self-employed person. A freelancer is typically self-directed at work, establishes their own billing rate, may supply their own tools, and may be able to earn a profit by subcontracting work or hiring assistants. Freelancers are, in essence, sole proprietors. They are responsible for their own taxes, so no Employment Insurance (EI) premiums, Canada Pension Plan (CPP) contributions or income tax is deducted from their fees, and the engager does not have to make EI or CPP contributions on their behalf. For contrast, see also Employee.

In the days of paper records, a general ledger was a book of accounts containing one page for each account. Accounting apps now create a separate document for each account. The ledger shows additions to and subtractions from the account balance, along with the current balance in the account. Additions are not shown as pluses (positive numbers) and subtractions are not shown as minuses (negative numbers). Rather, accounting uses a positional system of debits and credits to indicate increases and decreases. A posting reference links the entry in the GL to the entry in the originating journal. The account balances shown in the GL are the basis of the trial balance and the financial statements. See also Ledger; Subledger.

A partnership in which all partners have full legal liability. See also Limited liability partnership; Limited partnership; Partnership.

The set of principles that govern the accounting profession. Accounting works by principles rather than rules because the profession must be responsive to a constantly changing environment. In terms of fulfilling the various components of GAAP, there is always some degree of trade-off, which is a matter of professional judgment within the circumstances.

A voluntary transfer of property – often money – to a charity, generally without expectation of a benefit in return. Canadian charities can issue charitable donation receipts to donors, which confer a tax credit. Under Canada’s charity law, within certain parameters, donors can receive an advantage in exchange for their gift and still receive a charitable donation receipt for some or all of their gift (the receiptable amount). For contrast, see also Sponsorship. See also De minimis rule; Split receipting.

A gift of property other 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. In the case of an audit, Canada Revenue Agency may require proof of the stated value, such as a professional appraisal. Charities often solicit gifts in kind to use in operations (e.g., computer or other equipment) or to support fundraising special events (e.g., donated auction items or food and beverages).

A complex concept that addresses how groups of people organize themselves, formulate policies and plans, make decisions, and conduct their affairs. Of necessity, some individuals hold authority – but the governance model should allow for participation or influence from other stakeholders and for ensuring accountability from those in authority. Governance in not-for-profit corporations is generally understood to rest primarily with the board of directors, but it involves staff and volunteers.

A generic term that, in Canada, is 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 commonly (but not always) operate at arm’s length. Direct government funding tends to be allocated according to the policies of the government in power. See also Arm’s length.

In Canada, grants are commonly understood as a type of public or government funding. Private support from foundations may also be called grants. According to the federal government, grants are unconditional transfer payments that the government provides to individuals or organizations for activities that meet eligibility criteria set by the funding program. Arts councils may use the term somewhat differently in that recipients must adhere to terms and conditions, and grants are subject to review and revision. See also Contribution; Grant advance; Grant holdback; Operating grant; Project grant.

Portion of a grant paid out when the grant is approved or soon thereafter, often before the work has been done. See also Grant; Grant holdback; Operating grant; Project grant.

Portion of a grant held by the funding agency until the work is complete and a report has been submitted. See also Grant; Grant advance; Operating grant; Project grant.

Without tax or other amounts having been deducted from it. See also Gross pay; Gross profit; Net.

Portion of a grant paid out when the grant is approved or soon thereafter, often before the work has been done. See also Grant; Grant holdback; Operating grant; Project grant.

The total amount generated by an activity or event before expenses have been deducted. See also Gross; Gross pay.

In preparing summary accounting reports, you can group line items together by adding them and replacing the detail with a total amount. For example, consider the following line items:

These line items could be grouped onto a single line titled “production expenses,” with the value $6,975. Reference to set, props and costumes would disappear from the report. For contrast, see also Subtotal.

A federal sales tax originally introduced in 1993. Consumers pay a 5% tax (2023) on most items, with certain exemptions, including essentials such as groceries, pharmaceuticals, and residential rents. The tax is charged by companies registered with the Canada Revenue Agency (CRA). In broad strokes, commercial registrants remit the amount of tax they charged on sales minus the amount of tax they paid on their own purchases. Thus, for most commercial businesses, the tax is a flow-through with no consequence for profit or loss. Regulations for charities and not-for-profits can be quite complex; this is a good topic for discussion with your accountant. The not-for-profit sector includes organizations that have no sales and organizations that behave in much the same way as commercial businesses. CRA’s regulations specify special treatment for not-for-profits and for registered charities. All registered charities receive either a rebate (partial tax recovery) or a refund (full tax recovery) on GST/HST paid on purchases. See also Harmonized Sales Tax (HST).

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

An expense item where management has limited discretion or flexibility, or a strong commitment. For instance, utilities are considered hard costs, because businesses cannot operate without heat, electricity and water service. Leases and employment contracts are considered hard, because they cannot easily be broken or renegotiated. For contrast, see also Soft expense.

A revenue that is firmly committed or easy to forecast accurately. For instance, interest from a guaranteed investment certificate is a hard revenue. For contrast, see also Soft revenue.

An arrangement where a province merges its provincial sales tax regime with the federal GST regime to create a single tax structure, which is administered by the Canada Revenue Agency. Although the consumer sees only one tax amount, the CRA accounts for the provincial portion and remits it to the province. HST follows the same regulations as GST. See also Goods and Services Tax (GST).

See Grant holdback.

One of a number of synonyms for “statement of operations.”

A tax levied by both federal and provincial/territorial governments on the earnings of individuals and corporations. Registered charities are exempt from corporate income tax thanks to a provision in the Income Tax Act. Most not-for-profit corporations can claim exemption from income tax under other provisions in the Act. In Canada, personal income tax is assessed on a progressive basis. Individuals receive a basic personal exemption – an amount of tax-free income. Each government sets a scale of tax brackets levying successively higher rates on higher earnings. Most provinces and territories ask the Canada Revenue Agency to collect income tax on their behalf. CRA publishes tax tables (including provincial or territorial tax as needed) for ease of payroll calculation. See also Effective tax rate; Marginal tax rate; Progressive tax; T1; T2; T4; T4A.

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; they pertain to the organization as a whole. The exact amount belonging to one project may not be readily quantifiable, although the grant could be allocated by project on an estimated basis. 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. For comparison, see also Direct revenue or expense.

See Gift in kind.

Within the regulations for GST/HST, this term refers to HST paid on purchases, specifically in cases where that amount can be claimed as a refund. For example, commercial businesses that are registered for GST/HST can generally claim back ITCs on their returns. This means that they remit the net of GST/HST charged on sales and ITCs. The rules are more complex in the not-for-profit sector. Some not-for-profits are entitled to claim ITCs, depending on their specific circumstances. For comparison, see also Public service bodies’ rebate (PSB rebate).

Insolvency is a financial condition that an individual or a corporation may find themselves in if they are no longer able to pay obligations as they become due. A standard definition for insolvency is that the entity’s debts exceed its assets. Thus, a corporation with negative net assets (that is, an accumulated deficit) is technically insolvent. Companies that have become insolvent may declare bankruptcy. This legal process provides a way for settling debts, but with significant and potentially terminal consequences. It is not the only option, and it would usually be considered only as a last recourse. Not-for-profits in an insolvent state usually try to recover from it through a combination of cutting costs and generating extra revenues. That is,: the company continues to operate while it works to resolve its financial problems. This process may take multiple years, during which the organization may incur significant interest and penalty costs relating to managing its debts. However, recovering from insolvency in this way preserves the corporation and allows it to continue its mandate. For comparison, see also Bankruptcy.

The pay on which the premium for Canada’s Employment Insurance plan is calculated. Generally, earnings from salaries, wages, bonuses, commissions, vacation pay, sick leave, tips, gratuities, and taxable benefits paid in cash are insurable.

An intangible asset, of course, lacks physical substance: it cannot be seen, touched or felt. Monetary assets (even though, more and more, these are expressed electronically) are not considered to be intangible: they are held to be tangible assets. Examples of intangible assets include copyright, patents and trademarks. See also Tangible.

A sum of money paid for the use of money. For instance, banks pay depositors interest on the funds deposited to the bank. The bank can use that money to lend to borrowers. The bank charges interest to those borrowers. Businesses may charge interest to their clients on late payment of bills. The amount of interest is typically expressed as a percentage of the principal amount – that is, the total funds deposited or borrowed. See also Percentage; Principal; Rate.

A portion of the organization’s unrestricted net assets set aside by the board of directors for a specific purpose. See also Externally restricted fund; Restricted fund; Unrestricted net assets .

On a practical level, this term is often used interchangeably with “bill.” In some contexts, it is given a distinct meaning. For example, QuickBooks, a dominant player in the accounting software market, uses invoice to refer to a document you send to your customers, itemizing amounts you expect them to pay for goods and services they have purchased from you. See also Bill.

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 one or more expense accounts.

See Correcting entry; Entry; Reversing entry

A contractual arrangement where the lessee (user) pays the lessor (owner) for the use of an asset. This can be an office space, an apartment or equipment. The amount paid is called a lease payment or – particularly for real estate – a rental payment, or simply, rent . There is little practical difference between a lease agreement and a rental agreement. Both are legally binding contracts setting out terms, conditions and the amount owing. The distinction is usually duration. A rental agreement is usually short-term or month-to-month. A lease agreement is typically six months or longer. Thus, you might rent sound equipment for one show or lease it on a yearly basis.

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. See also General ledger (GL); Subledger.

A person or organization who lends money. Arts organizations often borrow from banks via a line of credit or a term loan. Arts organizations may find lenders amongst their circle of support (e.g., members of the board of directors or major supporters). See also Creditor.

A type of legal document conferring a status or right, which governments may use to create corporations. Some provinces use them to create not-for-profit corporations. Applicants for not-for-profit incorporations would normally have to identify a head office address, name their founding directors and list the objects of the corporation (its purpose or mandate). See also Articles of incorporation.

Obligation; debt; what a company owes to others. Common examples include bank loans, accounts payable, deferred revenue. Liabilities are reported on the balance sheet. See also Current liability; Long-term liability.

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. This type of partnership is used by many law and accounting firms. See also General partnership; Limited partnership; 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. Limited partnership may be used as a financing vehicle for commercial theatre. See also Finance; General partnership; Limited liability partnership; Partnership.

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 makes a deposit, the bank applies it to pay down the loan. See also Term loan.

Describes the ease with which an asset can quickly be sold in a marketplace to realize its value. On a practical level, this means the ease with which assets can be converted to cash. Cash, by definition, is completely liquid. All organizations need sufficient liquidity to be able to operate (i.e., to carry out their activities and meet their current obligations).

In accounting, “long-term” indicates more than one year into the future. Thus, a long-term liability falls due more than twelve months from now. Smaller not-for-profits rarely have long-term liabilities other than mortgages. Similarly, a long-term asset is one that the company expects to use or replace or convert to cash more than one year from now. Capital assets are long-term assets, as are long-term investments (those intended to be held for more than a year). See also Short-term.

A liability that will be paid off over a term longer than a year. A common example is a mortgage on a building. See also Current liability; Liability.

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.

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. The lowest common denominator is also known as the least common denominator and the lowest common multiple.

Some see mandate as synonymous with “mission.” Others view the term as the description of an organization’s raison d’être for legal purposes. This rings true on a practical basis: for most organizations, the mandate statement in their articles of incorporation or letters patent is drier and more general than the directive they articulate for their strategic plan. See also Values; Vision.

The ordinary rate of income tax charged on the next dollar of earnings. The Canadian income tax system has a series of tax brackets. If you earn enough, different “slices” of your earnings will be taxed at progressively higher rates. The marginal tax rate is the rate you pay on the taxable income in the highest bracket. See also Income tax; Progressive tax; Rate.

The price at which an item commonly sells in an open marketplace. For comparison, see also Book value. See also Fair market value (FMV).

Under generally accepted accounting principles (GAAP), materiality refers to the impact of an error, omission or other misstatement in the financial statements. An error or misstatement (or aggregation of errors and misstatements) is material in nature if it is significant enough to mislead the readers of the statements. An error or misstatement (or aggregation of errors and misstatements) that is deemed to be immaterial – that is, insignificant – may pass uncorrected. Anything material must be amended. One of the early steps in an audit is for the auditor to set the materiality threshold for the assignment – that is, the level over which a misstatement (or the aggregate of all identified misstatements) is deemed to be significant.

The middle number in a sorted list. Let’s say your last five workshops yielded these attendance figures:

Workshop 1: 37

Workshop 2: 40

Workshop 3: 41

Workshop 4: 31

Workshop 5: 28

To find the median, you need to sort the attendance numbers from lowest to highest: 28, 31, 37, 40, 41. The median is the middle number: 37. If the list contains an even number of items, there will be no middle number. In this case, take the average of the middle two items. See also Average.

Someone belonging to an organization. Members of a not-for-profit corporation have the responsibility of electing the board of directors. In cases where there is no overt membership (as there is for an association), the directors serve as the de facto membership, managing board nominations and elections internally.

A mission statement captures the practical, desired outcome: What should happen because of what this organization does? Who does it serve, and who benefits from its work? It is an expression of structure and appeals to the head – our rational side. See also Mandate; Values; Vision.

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.

A type of lending arrangement used to finance the purchase of a building or land. Mortgages typically run for many years (e.g., 25-year terms). If the borrower fails to meet their payment obligations, the lender has the right to seize and sell the property to recover the amount owing. Arts organizations that purchase their buildings commonly use a mortgage for financing. See also Finance.

A professionally managed investment fund that pools money from many investors, which is used to purchase securities. For many investors, mutual funds offer a better option than attempting to pick individual securities on their own. Although the fund involves fees, the professional management may be deemed to justify the cost, and participation in the fund allows for diversification, which tends to decrease risk. (As the economy goes up and down, different sectors of the corporate world may be affected differently. Investing in multiple sectors tends to smooth out big ups and downs in value.) Mutual funds may consist of stocks, bonds or a balance of the two. Each fund is designed to meet defined investment goals and risk profiles, so investors can select the funds that best meet their objectives. Not-for-profits with money to invest often use mutual funds as an element of their portfolios.

The remainder after tax or other amounts have been deducted from the gross. See also Gross; Net pay; Net profit.

The common term for equity in not-for-profit financial reporting. It is the amount that would be left if assets were used to pay off liabilities. The different terminology points to a different emphasis: equity denotes investment or ownership – neither of which exist in a not-for-profit organization. See also Net assets invested in capital assets; Restricted fund; Unrestricted net assets.

Equals net book value of capital assets less any deferred funding and less any borrowing specific to those assets (e.g., a mortgage). It indicates how much of your accumulated surplus is sunk in capital assets and, therefore, unavailable for other purposes. For a period of years, the CPA Canada Handbook required this to be itemized in audited financial statements. This is no longer the case, but CADAC still requires arts organizations to report net assets invested in capital assets. See also Net assets; Restricted fund; Unrestricted net assets.

The net book value of a capital asset is equal to the cost minus accumulated depreciation. That is, it is the undepreciated value of the capital asset, the amount remaining to be depreciated in future years.

An employee’s take-home amount after source deductions have been subtracted. See also Net; Net profit.

The amount generated by an activity or event after expenses have been subtracted. See also Net; Net pay.

“In name only.” In finance, this term may have multiple meanings, but in the not-for-profit sector it usually indicates an amount far below the real value or cost. So, for instance, a school offering music lessons to disadvantaged children might charge a nominal tuition fee to encourage committed attendance without creating a financial barrier. A public gallery might report its collection at a nominal value of $1 on its balance sheet. This allows the collection to appear in the financial statements, but without attempting to ascribe an actual economic value. The concept also has relevance for charitable donation receipts, although the Canada Revenue Agency uses a different term. See also De minimis rule.

The opposite of current, which refers to economic activity within the current fiscal period. Thus, fixed assets, or capital assets, could also be described as non-current assets. Similarly, long-term liabilities could be described as non-current liabilities.

A common term used to describe organizations that operate without the goal of making a profit. If such an organization is incorporated, its technical name is “corporation without share capital,” indicating that the organization has no owners. (Ownership of corporations is expressed in shares.) “Nonprofit” is used synonymously with “not-for-profit.” There is a difference in emphasis, which is worth highlighting: “Nonprofit” may be taken to mean “there isn't any profit” or, more dangerously, “we’re not allowed to make a profit.” In fact, corporate law permits nonprofit organizations to make money. Some funders may require grant recipients to operate at a break-even – but that’s a condition of funding, not a legal requirement. The difference between nonprofits and commercial businesses is that businesses are allowed to “bonus out” their profits to the owners and employees, whereas nonprofits must use their surpluses to advance their mandate. See also Mandate; Not-for-profit.

If your account does not contain enough money to clear a cheque that you have written or an electronic payment that you have initiated, and if you do not have overdraft protection, then the bank will “dishonour” or “bounce” the payment. Your payee is informed that the payment cannot be completed, and you are assessed a bank charge (NSF fee). See also Overdraft.

Used to amplify and clarify the items in the financial statements. Notes have the same importance as the numbers and must be read just 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 statement of operations may group all government funding onto a single line, with a note adding detail by specifying amounts from each funder. Additionally, notes can inform the reader about important context for understanding the organization’s situation. These may be specific to the organization, such as a note on lease commitments, which bind the company in future years. They may also address external factors. During the COVID-19 pandemic, most organizations added a note describing the nature of this disruption.

A common term used to describe organizations that operate without the goal of making a profit. If such an organization is incorporated, its technical name is “corporation without share capital,” indicating that the organization has no owners. (Ownership of corporations is expressed in shares.) “Not-for-profit” is used synonymously with “nonprofit.” There is a difference in emphasis, which is worth highlighting: “Not-for-profit” is the more precise term, because it implicitly asks, “If we’re not for profit, what are we for?” The answer is mandate. A for-profit organization’s primary goal is to make money for its owners. A not-for-profit’s primary goal is to fulfill a purpose that benefits a defined group of people or that benefits society broadly. Not-for-profits in the latter group may be able to secure charitable registration, which confers certain tax benefits. See also Charitable organization; Charity; Nonprofit.

A common informal name for a compilation engagement, arising because the report from the accountant covering the financial statements is usually titled “Notice to Reader.” The notice alerts readers to the fact that no measures have been taken to assure the accuracy of the contents and, therefore, the statements might not meet the readers’ needs. See also Audit; Review engagement.

An officer holds an office (a position with defined responsibilities) in a corporation. Officers are appointed by the directors of the corporation to assist the directors and to carry out specific functions. Directors and members may serve as officers of a not-for-profit (i.e., a not-for-profit’s officers could be volunteers or paid employees). Typical offices include president, vice president, secretary and treasurer; these offices are typically held by volunteers. Other offices named in the Canada Not-For-profit Corporations Act include the general manager, comptroller, and legal counsel; these offices are typically occupied by paid staff. It is wise to consult with a lawyer about the structure of the officers’ roles and responsibilities in your corporation.

In accounting, offset can be used in several ways, all of which are fairly intuitive. An offsetting item equals or balances or sometimes negates another item. For instance, in a journal entry, debits and credits must be equal: they offset each other. A reversing entry offsets the original, erroneous entry. Accumulated depreciation offsets the historical cost of a capital asset.

The account balance at the beginning of a period (e.g., a new month or 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 (i.e., a June 30 closing balance carries forward to July 1).

Covers an entire fiscal year’s revenues and expenses, including all projects, programs and services as well as overhead. See also Budget; Capital budget; Cash budget; Project budget.

A grant that helps underwrite a company’s entire program of activity for a fiscal year, including overhead. See also Grant; Grant advance; Grant holdback; Project grant.

The estimated loss to a company from not pursuing a potentially beneficial activity. It is important to recognize that choices not taken may also have a cost. For example, adopting new technology can be expensive and complex – but it is still wise to evaluate the opportunity cost of delaying change. An evaluation of opportunity cost would weigh the costs of adopting the new technology against, for example, estimated repair costs for older technology, estimated productivity issues (e.g., time spent waiting for downloads, slower customer service), and the fact that you may eventually be forced to upgrade when your current technology is no longer supported.

In accounting, an outstanding item remains to be dealt with. An outstanding account payable must be paid in the near future. An outstanding account receivable must be collected, hopefully in the near future. An outstanding deposit or payment has not yet been processed by the bank. See also Cleared.

An overdraft occurs when you withdraw more money from a bank account than the account contains and, thus, you create a negative balance. That is, you go into debt to the bank. Banks typically offer overdraft protection, meaning that you can pay for coverage up to a specified amount. An overdraft of $1,000 means that you can borrow up to $1,000. When you go into overdraft (i.e., when your account is overdrawn) the bank covers your payments up to that agreed amount. After that point, your cheques are “bounced” (synonymous terms for this are “dishonoured” or “to go NSF”). See also Nonsufficient funds.

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, fire safety, elevator maintenance and administrative staff time. See also Direct revenue or expense; Indirect revenue or expense.

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 ownership and 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. See also General partnership; Limited liability partnership; Limited partnership.

See Account payable (A/P).

A document created by management to allow staff to request a payment in cases where there is no supplier bill (the usual trigger). This is often needed where a supplier requires payment in advance. The payment req contains details such as item, cost, date, purpose – essentially, the details that would normally be contained on a bill. It serves to document the transaction when third-party documentation isn’t available.

Remuneration (salary plus benefits) paid to the employees of an organization. The word can also refer to the list of employees, as in, “Who’s on your payroll?” Canadian employers are obliged to adhere to the laws governing statutory deductions (Canada Pension Plan, Employment Insurance, and income tax). Additionally, employers may incur payroll costs for private benefits, such as health plans.

Amount 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.

A PIER is a notification from the CRA that informs employers that CPP and EI amounts reported on T4 slips do not match the amounts calculated by the CRA. PIERs can be accessed by employers through the CRA My Business Account portal, and they include: a listing of the affected employees and the amounts used by the CRA in the calculations; a PIER summary that shows any balance due; a remittance voucher. Once a PIER is sent, employers are required to respond or submit payment within 30 days.

The pay on which a pension calculation is based. For the Canada Pension Plan, Canadians’ regular earnings from salaries, wages, bonuses, vacation pay, commissions, tips, gratuities and the like are generally pensionable. Non-pensionable earnings include pensions (workers may be receiving a pension and still be employed) and earnings from a range of particular situations defined by the Canada Revenue Agency.

A number or ratio expressed as a fraction of one hundred. The original Latin phrase is per centum, meaning “by the hundred.” A percent is typically indicated by a percentage sign (%). Percentages provide a way to simplify or to generalize a mathematical comparison. For instance, according to Statistics Canada data cited by CAPACOA, in 2018 Canada’s live performance domain consisted of 14,910 organizations, of which 2,320 had employees and 12,590 did not have employees. Most people would find it challenging to discuss fractions of 14,910 and simpler to understand a per-hundred comparison, such as 15.6% of all live performance organizations in Canada have employees. To arrive at the percentage, you must divide the number of organizations with employees by the total number of organizations (that is, 2,320 ÷ 14,910), multiply that result by one hundred and display the answer with a percentage sign. See also Rate; Ratio.

Asset, liability and equity accounts are said to be permanent because their balances run continuously from year to year, showing the company’s up-to-the-moment financial position. For comparison, see also Temporary account.

A legal term that encompasses individual human beings (natural persons) and corporations (artificial persons). Persons are entities able to do the things that a human person can usually do in law, such as own property, enter into contracts, and sue or be sued. Note that this term has changed over time. In Canada, women were not considered persons in the eyes of the law until a Supreme Court decision on October 18, 1929.

A pool of cash kept handy to cover incidental expenses such as office supplies and cabs. Typically, the fund is controlled by setting the rule that it will always contain an agreed amount in cash plus receipts. For example, you might start a petty cash fund with $100 in cash. If a $15 item is purchased, the cash box will contain a $15 receipt and $85 cash, which equals $100 total. When cash gets low, you withdraw from the bank an amount equal to the exact value of receipts, bringing the fund back to $100 in cash. For comparison, see also Float.

In fundraising, a pledge is a promise from a donor to make a future gift. Charities often encourage multi-year pledges as a strategy for building committed relationships with their donors. The fundraising department may report on pledges as an indicator of its success. This may raise the question of whether pledges should also be captured in the accounting records so that the fundraising report matches the accounting report. From an accounting point of view, pledges are not legally enforceable. (You can’t sue a donor to make them honour their gift promise.) For that reason, it is wise to act conservatively when determining whether to record pledges as receivables. Most smaller organizations exclude pledges from the financial statements or include them only if the pledger is well-known to the organization. Larger charities may include a percentage of pledges as receivable based on their proven track record of collecting pledges.

As a noun, a plug is an unsupported adjustment. Plugging, as a verb, means forcing a specific outcome. A bookkeeper might plug a bank reconciliation if they are unable to balance and can’t locate the error, and that the error is immaterial in nature. Under the cost–benefit principle, as long as the error is insignificant, it may be cheaper for the organization to have the employee plug it and move on. A manager might plug a budget by editing revenue and/or expense lines to reach a desired bottom-line result. See also Material.

A set of rules, principles or guidelines adopted by an organization to help it meet its objectives. Arts organizations may adopt policies addressing a wide range of activity from revenue generation and financial reporting to programming choices and collections management (for museums or public galleries). An operating budget may be seen as a policy statement because it serves to set priorities and to guide actions and practical decision-making throughout the year. Not-for-profits, in collaboration with their auditors, develop accounting policy that sets parameters for recording transactions within generally accepted accounting principles. Public policy (i.e., policy created by government) works in a similar fashion. The governing body (e.g., Parliament or City Council) deals with issues of the day by creating guidelines expressing its intention for addressing them. See also Procedure.

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.

Goods or services paid for in advance but not yet received. Prepaid expenses are recorded in the assets section of the balance sheet. What you own is the right to receive goods or services at a future date. A common example of a prepaid expense is the 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 (that is, debit expense and credit prepaid expense). For comparison, see also Deferred revenue.

A sum of money, invested or loaned, on which interest is paid. See also Interest.

A private foundation can carry out its own charitable activities (like a charitable organization) and can fund qualified donees. Private foundations generally receive most of their money from a donor or group of donors that are not at arm’s length from each other. Additionally, 50% or more of its governing officials may not be at arm’s length from each other. Family foundations meet this description: commonly, the donors, members of the board of directors and other officers are related to each other. Certain Canadian cultural organizations are designated as private foundations because they were created and primarily funded by a wealthy benefactor. See also Arm’s length; Foundation; Public foundation.

One shareholder or a small group of shareholders own all the shares. See also Corporation with share capital; Publicly traded corporation.

Latin for “as a matter of form” or “for the sake of form.” With respect to financial statements, pro forma refers to forecasted statements prepared according to certain assumptions. You could consider the operating budget to be a pro forma statement of operations, because through the budgeting process you are forecasting your year-end results.

A series of steps to be followed to ensure a consistent result. Procedure is often referred to in context with policy – as in a policies and procedures document. In this case, procedures set out the agreed method for putting a policy into action.

An excess of revenues over expenses, meaning that a business has made money over a given period of time, most commonly one fiscal year. For comparison, see also Surplus.

One of a number of synonyms for “statement of operations.” P&L is the standard commercial term.

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. See also Proportional tax; Regressive tax.

Covers one single activity, showing the direct revenues and expenses for that project. Management may include the project’s appropriate share of overhead. See also Budget; Capital budget; Cash budget; Direct revenue or expense; Operating budget.

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. See also Direct revenue or expense; Grant; Grant advance; Grant holdback; Operating grant.

A revised budget based on adding year-to-date actuals to anticipated results for the remainder of the year. It is not considered best practice to update the board-approved budget in a financial report. Rather, the board-approved budget is used as a benchmark, and a projected actuals column is added to capture the revised estimate. This facilitates variance reporting. See also Variance reporting.

With respect to income tax, a proportional tax, also known as a flat tax, requires all taxpayers to pay the same fraction of their income. Wealthier individuals contribute more to the cost of government than poorer individuals, because they are paying the same rate on a larger income. Some view this as a fair approach. Others see it as potentially regressive, to the extent that the rate may place a greater burden on lower income earners. See also Progressive tax; Rate; Regressive tax.

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.

To divide or assess proportionally. To calculate the cost of a portion of something with reference to the cost for the whole. For example, if you move into a new apartment on the 20th, your landlord may pro-rate the rent for the partial month, so that you are paying only for the ten days of occupancy. The term is often used for accrual accounting. For instance, if your organization’s year-end is June 30 and you purchased a new insurance policy on April 1, you would pro-rate the cost of the insurance premium between this fiscal year (three months of coverage, April to June) and next fiscal year (the remaining nine months). And the term is also frequently used for planning. For instance, if you increased or decreased your gallery’s public hours, you need to consider whether it would make sense to pro-rate attendance revenue accordingly.

The counterpart of GST/HST. Provinces that have not adopted a Harmonized Sales Tax may still opt to levy their own tax on the sale of goods. Alberta is noteworthy because it has no PST (although the federal GST applies, as it does everywhere in Canada). In the case of provinces that have contracted with the Canada Revenue Agency to create a Harmonized Sales Tax, the HST rate is the sum of the GST plus the province’s provincial sales tax rate.

A public foundation generally gives 50% or more of its annual income to qualified donees, although it may also carry out some of its own charitable activities (like a charitable organization). More than 50% of its governing officials must be at arm’s length from each other, and, generally, it receives most of its funding from a variety of arm’s length donors. Community foundations meet this description: they exist specifically to meet identified community needs by pooling gifts from a wide array of donors. See also Arm’s length; Foundation; Private foundation.

Within the regulations for GST/HST, the PSB rebate is a partial recovery of GST/HST paid on purchases. Public service bodies include registered charities, municipalities, universities and colleges. The Excise Tax Act ensures that these bodies are entitled to a tax break. Other provisions of the law may apply within specific circumstances, meaning that some organizations may be able to make choices about how they report the tax. It is up to each organization to ensure that it has investigated its tax situation and is filing GST/HST according to the most advantageous method to which it is entitled. For comparison, see also Input tax credit (ITC).

Shares are traded on a stock exchange. There may be many thousands of shareholders. See also Corporation with share capital; Privately held corporation.

An accounting document issued by a buyer to a seller that clearly communicates the details of the items the buyer wishes to purchase, including the agreed price. Once the seller accepts the purchase order, it becomes a contract, in essence. Internally, purchase orders can be used to centralize approvals. Rather than allowing individual staff members or departments to purchase directly from suppliers, a PO system requires them to prepare a PO document and send it to accounting. The accounting department can then control purchasing by ensuring that each request conforms to company policy (e.g., that it is within budget, that the supplier has been approved). POs are more common in larger organizations.

A qualified donee can issue charitable donation receipts and can receive gifts from registered charities. By definition, a registered Canadian charity is a qualified donee. However, the Canada Revenue Agency also recognizes different types of organizations that do not have charitable status as qualified donees. These include, among others, municipalities, foreign universities that typically include Canadian students, registered amateur athletic associations, and registered national arts service organizations.

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 report and serves as a caution to readers. Many 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.

Within the regulations for GST/HST, a qualifying not-for-profit is entitled to the same sales tax considerations as a registered charity. The qualification involves receiving 40% or more of revenue from government grants.

The number of voting members who must be in attendance for business to be conducted. As a matter of best practice, boards and committees establish a quorum for their meetings, and organizational bylaws set a quorum for meetings of members. If the required minimum number of people fail to attend, the meeting might be called off, or it might proceed but no decisions can be taken. The intent is to prevent decisions being made by an unduly small group of people who might not be representative of the entire body’s views.

A ratio between two related quantities. Sometimes the two related quantities are expressed in different units, such as number of museum visitors per hour (e.g., as a control for timed museum admissions). Notice the use of “per” to capture the comparison. Sometimes the two related quantities are expressed in the same units, in which case the comparison can be expressed as a percentage. For example, interest rate is the percentage at which interest is calculated on dollars invested or dollars borrowed. Thus, if my investment pays $3 per year for every $100 invested, the interest rate is 3%. See also Interest; Percentage; Ratio.

The net gain or loss on an investment over a period of time. This term can be applied to all forms of investment return, including dividends and capital gains, as well as interest and is determined by calculating the net gain or loss on an investment as a percentage of the principal. For instance, if you purchased shares in a company at $10 each and one year later you sold those shares for $11 each, your rate of return would be 10%. (In a bad year, you might be calculating a negative rate of return.) See also Rate.

A ratio expresses the quantitative relationship, or proportion, between two things. The word is derived from the Latin for “reckoning.” Say that 80 out of 200 audience members are senior citizens. Usually, you would simplify first by taking out a common factor of 40; this leaves you with a ratio that can be expressed as “the ratio of senior citizen patrons to all patrons is 2 to 5.” You can also express that ratio using a colon, as in “2:5,” and you can convert it to a percentage, as “40%.” This example calculates senior citizens as one part of the whole audience. Ratios can also be used to compare two parts to each other. Thus, if 80 out of 200 patrons are senior citizens, 120 patrons must be younger. It follows that the ratio of senior citizens to younger audience members is “2 to 3,” or “2:3.” When comparing one part to another part, you would not typically extrapolate to a percentage. See also Percentage; Simplify.

An analytical approach based on calculating financial ratios. Ratios can be calculated internally by comparing elements of the financial statements to each other, and externally by comparing one company’s data to that of other companies in the same industry. In the business world, ratio analysis is a well-established tool used to evaluate a company’s liquidity (its ability to cover short-term obligations), its profitability (operating efficiency), and its solvency (the degree of risk it may face in sustaining itself over the long term). Not-for-profit organizations and their funders also use ratios to measure liquidity, operating efficiency and solvency. For example, the CADAC financial form includes the current ratio (also known as working capital ratio), a liquidity measurement. The CADAC form also builds in operating ratios in that it measures each revenue item as a percentage of total revenues, and each expense item as a percentage of total expenses. Historically, funders have compared accumulated surplus or deficit to total revenues. This provides insight into the degree of financial risk a company may face and is a solvency measurement. See also Current ratio.

An amount has been realized when it has been received. An amount is considered realizable when the company expects to receive it. See also Recognized.

These terms have a colloquial meaning, and they also have a technical application within accounting and law. An action, estimate or amount is deemed to be reasonable if it would be recognized as such by a prudent and knowledgeable person acting appropriately within the circumstances.

See Account receivable (A/R).

The Receiver General for Canada is the central treasurer and accountant of the federal government. Amongst other things, they are responsible for overseeing all the funds coming in and going out of government accounts. Tax remittances to the federal government are made payable to the Receiver General.

Recognition is the process of entering revenue or expense on the books. Revenue is recognized when it is realized or realizable and when it has been earned (meaning that the related goods or services have been delivered). Let’s consider three examples. If you sell me a ticket and I walk into the theatre, you can recognize that ticket sale as revenue: you have earned it by providing me with a show, and the revenue is realized because I have paid you my money. If you make a group sale for next week, and the customers have signed a contract but haven’t yet paid, you can recognize the revenue because (on the strength of the signed contract) it is realizable. However, if you make a group sale for six months from now and they prepay you, technically you can’t recognize the revenue yet because (even though you have the money) you haven’t yet earned it. Properly, you should enter their payment in the books as deferred revenue until they come to see the show. Expense is generally recognized in the same period as the related revenue. See also Realized.

The process of comparing two sets of records to ensure either that they match or that differences can be itemized, explained and documented. For instance, the bank reconciliation involves comparing the bank’s records to yours. In other cases, reconciliation can mean the process of reviewing transactions and supporting documentation and addressing any discrepancies that are identified. For instance, payroll reconciliation involves reviewing your accounts to ensure that the end-of-period results correspond to the sum of the period’s transactions. See also Balance; Bank reconciliation; 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. That is, you have issued the cheque, but the payee has not yet cashed it. These must 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.

A special type of account that provides an incentive for retirement savings by offering an income tax advantage. Funds invested in an RRSP are tax-sheltered until they are withdrawn. If you hold the investments until you retire, you will have to pay tax at whatever rate prevails during your retirement – presumably a time in your life when you will have a lower income and, therefore, less tax to pay.

A regressive tax is applied to all taxpayers uniformly. Such a tax places a greater burden on lower-income taxpayers because it takes a higher percentage of their earnings. See also Progressive tax; Proportional tax.

A common line item in the net assets section of a not-for-profit’s balance sheet. It is a fund whose use is limited to designated purposes. See also Externally restricted fund; Internally restricted fund; Net assets; Net assets invested in capital assets; Unrestricted net assets.

See Provincial Sales Tax (PST).

Equity resulting from a business’s profits or surpluses. The company’s value increases when it generates a surplus and decreases when it incurs a loss or deficit. In business, retained earnings are itemized in the equity section of the balance sheet. Typically, current earnings are segregated, so the equity section shows the current fiscal year’s earnings separately from the accumulated earnings of all prior fiscal years. Because not-for-profits commonly use software designed for business, not-for-profit managers are accustomed to seeing this term on the statements produced from their books; however, the not-for-profit equivalent is “net assets.” Retained earnings is also a synonym for “accumulated surplus or deficit.” For contrast, see also Contributed capital. See also Current earnings; Earnings.

The profit or yield from an investment. See also Rate of return.

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

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. The following example shows a payment issued to a supplier for office supplies that must be reversed because the supplier has been unable to complete the order. See also Correcting entry.

GENERAL JOURNAL

A service performed by an accountant offering a limited degree of assurance as to whether the resulting financial statements are free of material misstatements. A review engagement does not involve audit testing. Rather, it relies on evaluating the plausibility of the accounting information supplied by the client. The accountant conducts inquiries of management (e.g., about accounting practices and procedures; actions taken at meetings of the board of directors; management’s awareness of any fraud or other issues) and analyzes the contents of the statements (e.g., year-over-year comparison; relationships between recorded amounts). The result offers negative assurance – that is, the accountant reports that they have not discovered anything to suggest that the statements were not prepared in adherence to generally accepted accounting principles (GAAP). Some Canadian arts organizations use review engagements because they are less expensive than audits and may be sufficient for reporting needs (e.g., for certain arts council funding programs). See also Audit; Compilation engagement.

See Line of credit.

With respect to insurance, a rider is an add-on to the basic policy that provides additional benefits, subject to terms and conditions. For instance, a company may maintain general liability insurance coverage as a matter of course. If they go on tour, they may add a rider to the policy to cover for specific risks they may encounter on the road.

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

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

A term describing operating procedures that separate a task into phases assigned to different staff members. This process allows the staff members to act as checks and balances on each other’s work. This is deemed to discourage dishonesty and concealment of errors and to improve the reliability of accounting results. For example, in many organizations the bookkeeper is the only person allowed to prepare payments, but they are not given signing authority. One or more managers and directors are given signing authority to ensure independent scrutiny of the amounts and payees. Similarly, a membership coordinator may be allowed to open the mail, process credit card orders, and receive cheques and cash, but they are not allowed to prepare the bank deposit or take it to the bank. Instead, these tasks are assigned to the bookkeeper, who, in turn, is not allowed to open mail or process payments.

A portion of ownership in a business corporation. Shares are also referred to as stock. The shareholder, or stockholder, specifically, owns a certain number of shares. Corporations may issue different types of shares that convey different privileges. Common shares carry a voting right, meaning that common shareholders get a vote at the company’s annual shareholders meeting. Preferred shareholders have no voting rights but have priority in the allocation of dividends.

The owner of shares. Depending on the type of shares they own, they may be entitled to dividends and to a vote at the annual shareholders meeting. Shareholders are responsible for electing the board of directors of commercial corporations.

In accounting, “short-term” means within the upcoming year. Thus, a short-term liability falls due within the next twelve months. Accounts payable and deferred operating revenues are common examples. Similarly, a long-term asset is one that the company expects to use or replace or convert to cash more than one year from now. Capital assets are long-term assets, as are long-term investments (those intended to be held for more than a year). See also Current; Long-term.

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. (Note that the zero in the one hundred thousand’s place is significant, because it holds that place up to the last line in my example.) See also Rounding.

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. You can also use fractions or percentages rather than numbers. For instance, if a company sold 3,069 seats of a total capacity of 4,300, easy ways to communicate the result to readers or listeners would be to say “a bit over 70%” or “approximately three-quarters.” Simplified numbers are not accurate, per se, but they are deemed to 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 is almost invariably wrong to simplify!) See also Rounding; Significant digit.

A form of organization that occupies a middle ground between commercial business and the not-for-profit sector. In Canada, they are usually organized as not-for-profits and may have charitable status. Social enterprises are mandate-driven but use commercial strategies to achieve their goals. They are often significantly financed by earned revenue but may also qualify for grants and donations. See also Collective; Co-operative.

A nine-digit federal government identification number introduced in 1964 to register people for Employment Insurance. Since 1967, SINs have been used as file identifiers by the Canada Revenue Agency (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.

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

Revenue that is less committed or more difficult to forecast accurately. Single ticket sales should be treated as a soft budget item until management receives some actual results. For contrast, see also Hard revenue.

See proprietorship.

Amount withheld from an employee’s pay and remitted to a third party, such as income tax, Canada Pension Plan contributions and Employment Insurance premiums, all of which are remitted to the Canada Revenue Agency. The term also applies, for instance, to health plan premiums, which are remitted to the insurance company, or union dues, which are remitted to the union.

The method used to calculate the receiptable amount of a gift when the donor has received an advantage. The value of the gift minus the fair market value (FMV) of the advantage equals the receiptable amount. In effect, the donor’s payment is split into two portions: a purchase and a gift. In the case of a gala ticket where attendees receive a dinner and a performance, the charity must determine the fair market value of the dinner and show and subtract this from the gala ticket price. The remainder is the eligible amount. Caution: If the FMV of the advantage exceeds 80% of the amount paid by the patron, the Canada Revenue Agency (CRA) deems that there is no donative intent. Thus, if each patron pays $250 for their ticket, and the FMV of the dinner and show is $150, each patron can receive a charitable donation receipt f0r $100. CRA recognizes an intention to make a gift, because $150 is less than 80% of the $250 ticket price. If tickets were offered at $175, no charitable donation receipt could be issued, because the advantage is worth more than 80% of the ticket price. See also Advantage; Charitable donation receipt; Donative intent; Fair market value.

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.

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. For comparison, see also Donative intent; Gift.

A common term in the not-for-profit sector. It is used to describe people and entities who have an interest in the well-being of an organization. Stakeholders generally include donors, sponsors, government funders and lenders – all of whom give or loan funds – and users/recipients of the organization’s services, such as members, ticket buyers, and class or workshop registrants. Some organizations might include the media in this list.

A cheque is valid only for a certain period of time, per your bank’s policies. In Canada, this is typically six months. A cheque is said to be stale-dated when its issue date is outside the time period when the cheque is valid. A stale cheque has expired and should not be cashed.

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 balance sheet, where it appears as net assets (for formal presentation) or retained earnings (in most commercial accounting software). A surplus on operations adds to the value of the company, and a deficit depletes it.

One of a number of synonyms for “statement of operations.”

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.

Amount deducted from employees’ gross pay by law. In Canada, statutory deductions include income tax, contributions to the Canada Pension Plan (CPP) and premiums for Employment Insurance (EI).

Stock refers to ownership in a corporation. A stockholder, specifically, owns shares in those companies. Stock can be purchased directly from the company itself, and it can also be traded on stock exchanges. Thus, you might purchase IBM stock from IBM, but more likely you would buy it from another stockholder who has offered it for sale on the stock exchange. For comparison, see also Bond; Equity; Share.

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. “Strat plans” often cover a number of years (e.g., a three-year or a five-year plan) and are often maintained on a rolling basis. This means that the strategic plan is updated every single year: we complete one year, add a new one to the end of the plan and update the intervening years. See also Business plan.

A subledger contains subsidiary sets of information. The accounts payable (A/P) subledger contains one account for each vendor showing purchases from them, payments to them and the balance currently owed. The sum of the individual vendor accounts must equal the balance of the A/P account in the general ledger (GL). The A/P account in the GL is the control account for the A/P subledger. Accounts receivable work in the same way.See also General ledger (GL); Ledger.

In financial reports, a subtotal is the total of a group of values within a larger total. The below information shows expenses for a performance:

These expenses could be subtotalled as follows:

The details are preserved, and the subtotals help to break up the information. For contrast, see also Group.

At the simplest level, succession planning involves developing a strategy to transfer leadership (e.g., when a board member’s term ends or when a senior manager retires or resigns). However, organizations often adopt a more comprehensive view. Board and management may identify key positions (both staff and volunteer) where a succession strategy may be beneficial and develop processes for identifying, recruiting, training and mentoring strong candidates to move into these roles. Some boards implement a farm team approach, where active committees are used as an entry point and training ground for new directors. Sometimes key staff are actively involved in their own succession planning. For example, a founding artistic director may take the lead in preparing the company for their eventual retirement and in preparing their successor to assume their responsibilities.

The standard not-for-profit term for a profit. A surplus is an excess of revenues over expenses, meaning that the organization has made money over a given period of time, commonly one fiscal year. The surplus appears on the bottom line of the statement of operations. See also Accumulated surplus or deficit.

A sustainable organization is one that is expected to be able to operate successfully into the foreseeable future. Benchmarks of sustainability include reasonably secure and predictable sources of operating revenue (often diversified and indicating strong community support for management) and reasonably predictable streams of operating and project expenses (evidenced by an artistic/programming plan that matches the organization’s capacity). A sustainable organization is likely to have positive working capital, positive net assets, and, depending on its needs, perhaps internally restricted funds reserved for operations and capital needs. See also Internally restricted fund; Net assets; Working capital.

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

The Canada Revenue Agency form used for reporting corporate income tax. Due 180 days after the company’s year-end for the previous fiscal year. See also T2 Short.

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

The Canada Revenue Agency form used for reporting the activities of a registered charity. Due 180 days after the company’s year-end for the previous fiscal year. Most of the content of the T3010 is defined as public under the Income Tax Act. This includes the names of the directors of the charity. The Charities Directorate publishes the public portions of T3010s for the past five years on its website.

The Canada Revenue Agency form employers issue to payroll staff no later than February 28, stating the previous calendar year’s earnings, Employment Insurance premiums, Canada Pension Plan contributions, income tax, and any other income and deductions required for tax reporting. The employer retains a copy and files a copy with CRA with the T4 Summary. Likewise, the employee retains a copy and attaches one to their T1. The CRA compares the two copies it receives to check for possible fraud. See also T4 Summary.

The Canada Revenue Agency form used to report the aggregate of all 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 before CRA issues a refund. See also T4.

The Canada Revenue Agency form that payers may issue to freelance staff (and others, as needed) no later than February 28 to report certain types of income. 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, and fees or other amounts paid for services). The payer retains a copy and sends a copy to the CRA with the T4A Summary. Likewise, the freelancer keeps a copy and attaches one to their T1. The CRA compares the two copies it receives to check for possible fraud. See also T4A Summary.

The Canada Revenue Agency 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 there are no balancing issues. See also T4 Summary; T4A.

Colloquially, having physical substance. Equipment, vehicles, buildings and land are examples of tangible assets. Tangible assets have a finite life, and their value can be measured specifically. Monetary assets, including accounts receivable, are considered to be tangible assets. Most tangible assets are also long-term in nature, meaning that they last more than a year. See also Capital asset; Intangible.

Canada’s income tax system divides taxpayers’ income into brackets. Higher amounts of income are taxed at successively higher rates. For instance, in 2023, the first $53,359 of income was taxed federally at 15%, and the next $53,359 of income (i.e., for people earning up to $106,717) was taxed federally at 20.5%. Note that the provinces assess income tax in addition to the federal amount. See also Effective tax rate; Marginal tax rate.

A direct reduction to the amount of income tax payable. That is, taxpayers calculate the amount they owe and subtract tax credits to yield their net 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 Canada Revenue Agency. For comparison, see also Tax deduction.

A tax deduction lowers your tax payable by reducing your income. Most deductions are expenses that can be subtracted from your gross income. Your tax is calculated on net income. Employees may be able to claim costs associated with employment. For instance, historically, if your employer required you to maintain a home office, you could use your home office expenses as a tax deduction. During the COVID-19 pandemic, when working from home became widespread, the federal government established a temporary flat rate deduction of $2 per day to a maximum of $400 per year, thereby excusing taxpayers from the need to maintain detailed records. More commonly, tax deductions pertain to self-employed people. For instance, a painter may sell a picture for $500, but they spent $40 on paint and other supplies. The $40 is a legitimate business expense – a deduction – so income tax is calculated only on $460 (500 - 40). For comparison, see also Tax credit.

Governments can make grants and contributions directly, or they can create incentives to encourage taxpayer support by reducing or eliminating taxes and thereby foregoing tax revenue. From the government’s point of view, foregoing revenue is equivalent to spending money. A charitable donation receipt – which rewards donors with a tax credit – is an example of a tax expenditure. The more Canadians donate to charity, the greater the resulting tax expenditure.

See Charitable donation receipt.

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 net assets section of the balance sheet. The accounts themselves continue to exist in the books, ready to start accumulating next year’s data. For comparison, see also Permanent account. See also Closing entry.

A fixed or limited time period or duration. Investments such as treasury bills (T-bills) and guaranteed investment certificates (GICs) are sold on fixed terms. Lenders specify the terms of mortgages, and accountants depreciate capital assets over standard terms as part of organizations’ accounting policies.

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

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 over an agreed term. See also Interest; Term.

A name other than its legal name that a corporation operates under. For instance, “Stratford Festival” is a trade name for “The Stratford Shakespearean Festival of Canada.” Trade names must be registered with the appropriate government agency: federal or provincial. A trade name is not necessarily exclusive. Two or more companies may register the same name. For comparison, see also Trademark.

Distinct from a trade name, a trademark provides federal protection for business names, logos, slogans, products and services. The registration of a trademark provides the exclusive right to use that trademark across Canada in connection with the goods and services associated to it. Companies operating internationally may seek comparable protection in the other countries where they operate.

An exchange of value between two or more parties. For instance, I go to the store and purchase a pen. I exchange my money for the pen: that’s the transaction. Transactions can involve goods or services exchanged for money or for some other valuable consideration. So, for instance, bartering your services as an usher in exchange for free admission to a play is a transaction.

A form of government bond sold on a discount basis. For instance, if you want to purchase $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.

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.

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 totalled. If total debits equal total credits, the trial balance is arithmetically correct, and you can assume your work is free of technical errors.

A trustee manages assets or holds legal title to property on behalf of a beneficiary. The legal definition of a trustee is distinct from the legal definition of a director. Trustees are held to a higher level of accountability than directors. However, confusingly, sometimes these terms are used interchangeably. Regardless of what name any corporation might use, if there were a legal dispute, the courts would evaluate the responsibilities involved and adjudicate accordingly.

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

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 to carry out business with the goal of making a profit: legally, that 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.

Calculated by dividing total cost by number of units of activity. If a bottle of wine costs $15.00 and holds six servings, the unit cost of a serving is $2.50. If a carton of 10 reams of copier paper costs $50.00, the unit cost per ream is $5.00. If a costume designer pays $180.00 for a bolt of fabric containing 30 yards of fabric, the unit cost per yard is $6.00. Units can be hours, people, servings, theatre seats or any item that provides a unit of measurement. See also Fixed cost; Variable cost.

The balance of the organization’s accumulated surplus or deficit after the subtraction of restricted funds and net assets invested in capital assets. It is the portion of the accumulated surplus available to be used in general operations. See also Net assets; Net assets invested in capital assets; Restricted fund.

Values are the principles that guide an organization’s actions: the compass that helps ensure leadership stays on the right track in the pursuit of its mission or mandate. See also Vision.

Cost where the total cost fluctuates depending on the level of activity, but the unit cost tends to remain fairly stable over a wide range of activity. For example, when an organization leases a photocopier, it generally pays the lease (a fixed cost) and also a metred, per-copy cost. The per-copy cost does not change, but the total paid is higher in months where many copies are made and lower in months where fewer copies are made. In some variable cost situations, if volume increases enough, suppliers may offer volume discounts, which would lower the unit cost. For contrast, see also Fixed cost; Unit cost.

The difference between two numbers, calculated by subtracting one from the other. In accounting, it is the difference between the plan and the results. 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.

Literally, reporting on the difference between two values – typically the budget and the actuals. Also known as budget-to-actuals variance reporting, this is a core technique for evaluating financial results. See also Projected actuals.

See Aging.

An organizational vision is aspirational in nature: a dream that may or may not come true. Captured in a brief, inspiring sentence, it appeals to the heart. See also Mandate; Mission; Values.

All Canadian provinces have a body dedicated to occupational health and safety and the care, compensation and retraining of workers injured on the job. Employers contribute a percentage of payroll – in effect, a premium comparable to Employment Insurance – to cover their workforces. When medical treatment is needed for a workplace injury, WCB or WSIB is the first insurer, ahead of the provincial health plan. For construction, trades and certain other sectors, WCB or WSIB is mandatory. In other cases, employers can voluntarily insure their employees.

An organization’s readily available resources, calculated as current assets minus current liabilities. Note that working capital includes more than money in the bank. Working capital is essential: it represents your day-to-day operating resources. One of the responsibilities of financial management is to maintain sufficient working capital to allow the organization to meet its ongoing obligations. See also Current ratio.

To write down is to reduce the value of an asset and move the amount of the reduction to expense. “Writing down” is understood to be reducing, but not eliminating, the value. For comparison, see also Write off, write on.

To write off is to reduce the value of an asset and move the amount to expense. Often, “writing off” is understood to be reducing the value of the asset to zero. For instance, if you realize that one of your accounts receivable is unlikely to be collected, you must write off the uncollectible amount to an expense account called “bad debts.” In effect, you are stating that it is no longer an asset, because you don’t expect to be able to exercise your right to collect the money owed to you. The write-off negatively affects your bottom line and, ultimately, your net assets. Suppose your delinquent account eventually pays up. You can write the receivable back on to the books by taking the opposite action. For comparison, see also Write down.

A common term referring to the comparison of this year’s figures to last year’s figures. YOY can refer to plans (as in, “the YOY growth in our budget”) or to actuals (as in, “the YOY change to operating results”).

Actuals from the start of the current fiscal year to the present moment or, more likely, to the most recent complete month.