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Glossary of Financial Terms

ALLOCATION - The assignment and reassignment of a cost or group of costs to one or more cost objectives based on a reasonable standard.  Terms with assorted shades of meaning are cost reallocation, cost assignment, cost apportionment, cost assessment, and cost distribution.  For example, building costs are allocated on the basis of the number of employees in each division. 

APPROVED BUDGET - The Approved Budget represents the Board approved financial plan for a given year.  The Approved Budget serves as the benchmark by which the Society's financial performance is implemented and monitored.

ASSESSMENT - A method by which indirect costs are spread to an operating department based on a predetermined basis (see Indirect Assessment).

ASSET - Assets are probable future economic benefits obtained or controlled by the Society as a result of past transactions or events.

BOOK VALUE - Original cost of an asset less any accumulated depreciation.  The book value is generally not equal to the market value of an asset (see Depreciation Expense).

BUDGET - A quantitative expression of a plan of action, for a given period of time, and an aid to the coordination, implementation, and measurement of the plan of action.  Also, it is a tool for obtaining the most productive use of an organization’s total resources.

CAPITAL ASSET - Also called fixed asset. A physical asset with a useful life of more than one year, held for the services it yields in the production of goods and services, for example, buildings, machinery, equipment, and land.

CAPITAL BUDGET - A process of planning expenditures for assets with returns expected to continue beyond one year or the making of long-term planning decisions for investments in fixed assets and their associated financing.

CASH AND CASH EQUIVALENTS – Cash equivalents include money market funds which can be liquidated on a daily basis.  These money market funds invest primarily in short-term U.S. Treasury securities, other short-term highly liquid investments, and certain fixed income securities.

COST - Resources sacrificed or forgone to achieve a specific objective.

COST OF CAPITAL - The theoretical cost of obtaining external financing for capital expenditures.   

CURRENT ASSET - Cash and other assets that are reasonably expected to be turned into cash, sold, or consumed within the normal operating cycle, or within one year of the last Statement of Financial Position, whichever is longer.  Major items included in this category are cash, short-term investments, receivables and prepaid expenses.

CURRENT LIABILITY - Short-term liabilities whose liquidation is reasonably expected to require the use of existing resources classified as current assets, or the creation of other current liabilities.  Major items included in this category are accounts payable, accrued expenses and short-term deferred revenue.

CURRENT RATIO -  A ratio that provides an indication of whether the organization has sufficient liquid assets to meet its short-term obligations as they come due and is defined as the ratio of current assets to current liabilities.

DEBT RATIO - A ratio used to assess the organization’s level of, or dependency on, long-term borrowings. This ratio is useful in forecasting an organization’s long-term solvency. It indicates the relative contributions that creditors and owners have made to the financing of assets. It is defined as the ratio of total debt incurred by the Society to the Society’s unrestricted net assets.

DEFERRED REVENUE - A liability account representing revenue billed in advance or cash collected in advance of when the entity transfers promised goods and services to the customer.  When this occurs, the revenue is treated as deferred.  Examples of deferred revenues include membership dues and subscription payments received in advance.

DEPARTMENT ID – This is a level at which financial data is captured.  A Department ID may be a publication, an individual unit of a larger program, or an entire program.

DEPRECIATION EXPENSE - The allocation of the cost of a fixed asset (less salvage value) over its estimated useful life in a systematic and rational manner.  This systematic and rational allocation provides for a reasonable and consistent method for recognizing and matching the cost of an asset against the revenues generated during the asset's useful life.

DIRECT COSTS - Costs that can be specifically associated with a single cost objective in an economically feasible way or closely associated with the output of a product or service.  In addition, direct costs tend to vary proportionately with the volume of production or level of service provided.

DUES ESCALATOR - Amount by which the annual membership dues rate is increased.  The escalator is subject to certain limitations, as stipulated in the Bylaws of the Society.

DUES POOL  - Consolidation of ACS member dues revenues, specific dues-related contributions (emeritus), by-law specific allocations (to C&EN) and allotments (to Local Sections and Divisions) and related record retention expenses for ACS members.  

EXPENSES - Expenses are outflows or other uses of assets or incurrences of liabilities (or a combination of both) resulting from the delivery or production of goods, rendering of services, or carrying out of other activities that constitute an organization's ongoing major or central operations.

FIXED COSTS - Costs that remain unchanged within the relevant range for a given time period despite fluctuations in activity.

FREE CASH FLOW -. An indication of the amount of cash being generated by the operations of an organization less expenditures for capital purchases.

FUND BALANCE RATIO - This ratio provides a rough test of the adequacy of the Society’s unrestricted net assets.  The ratio compares the current year’s unrestricted net assets with next year’s operating expenses.   

GAAP - Generally Accepted Accounting Principles refers to the standard framework of conventions, rules, and procedures that provide the guidelines accountants follow to record and summarize financial transactions.  The Financial Accounting Standards Board (FASB) defines these principles upon which accountants depend in order to prepare an organization’s financial statements.  The Society’s financial statements are prepared in accordance with U.S. GAAP.

GENERAL AND ADMINISTRATIVE EXPENSES (GAE) - Those expenses associated with the indirect cost centers; e.g., Officers, General Administration, Human Resources, Finance.  These expenses are distributed to the operating units through the use of an indirect assessment.

GROSS MARGIN - Sales revenue less the direct cost of producing goods or services sold.

INCREMENTAL COST - The difference in total cost between two alternatives in a decision - also called differential cost.

INDIRECT ASSESSMENT - General and administrative expenses and building costs which are distributed to the operating units through an assessment formula.

INDIRECT COSTS - Costs that are not directly related to the output of a product or service or cannot be identified specifically with a single cost objective in an economically feasible manner.  Indirect expenses represent the costs of running a business.

INTERNAL RATE OF RETURN - The rate of interest at which the present value of expected cash inflows from a project equals the present value of the expected cash outflows of the project.

IRS FORM 990 - An annual information return - Return of Organization Exempt from Income Tax - that certain federally tax-exempt organizations must file with the Internal Revenue Service. It provides information on the tax-exempt organization’s mission, programs, finances, governance and management policies, and disclosure practices. 

IRS FORM 990-T - An income tax return - Exempt Organization Business Income Tax Return - that an exempt organization must file with the IRS if it has $1,000 or more of gross income from an unrelated trade or business.  Even though an organization is recognized as tax exempt, it still may be liable to pay tax on its unrelated business income.

LIABILITY - Liabilities are probable future sacrifices of economic benefits arising from present or past obligations of the Society.

LIQUID ASSETS - Economic resources that can be immediately convertible to cash (generally without incurring a loss).  The Society defines liquid assets as cash and cash equivalents, accounts receivable and operating investments.

MANAGEMENT REPORTS (MRs) - Internal financial reports that compare actual performance to budgeted performance by type of revenue and expense.

NET ASSETS - Represents the residual interest in the assets of the Society that remains after deducting its liabilities.  Also called reserves.

NET ASSETS WITHOUT DONOR RESTRICTIONS – Represents net assets that are free of donor-imposed restrictions. All revenues, gains, and losses that are not restricted by the donor are included in this classification. All expenses are reported as decreases in net assets without donor restrictions.

NET ASSETS WITH DONOR RESTRICTIONS – Represents net assets that are subject to donor-imposed restrictions that will be met either by actions of the Society or the passage of time. These net assets include donor restricted endowments and unconditional pledges.  Generally, the donor-imposed restrictions of these assets permit the Society to use all or part of the income earned (interest and dividend income) on the related investments for specific purposes; however, investment gains and losses are reinvested into the corpus.

OPERATING BUDGET - A document and a process of planning operating revenues and expenditures for a year or series of years.

OPPORTUNITY COST - The investment return forgone by using liquid resources for a particular acquisition or project. 

PERFORMANCE OBLIGATION - A promise in a contract with a customer to transfer to the customer either:

1. A good or service (or a bundle of goods or services) that is distinct.
2. A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

Identifying the performance obligations in a contract is one of the steps required by the revenue recognition principle.  See the definition for Revenue Recognition Principle.

PERMANENTLY RESTRICTED NET ASSETS - The part of net assets with donor restrictions of a not-for-profit organization resulting from (a) contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization; (b) other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) reclassifications from (or to) other classes of net assets as a consequence of donor-imposed stipulations.

PHASED BUDGET - A monthly operating budget, based on the Approved Budget, which reflects management's best estimate as to when the revenues and expenses are anticipated to be incurred.

PROBABLE YEAR-END PERFORMANCE - Projections presented to Governance at both the Fall National Meeting and the December Board Meeting to reflect management’s estimates for the year as of a certain point in time.

PROGRAM - A set of related actions that can be described and reported in financial terms as revenues and/or expenses.  Information about a program's goals and financial performance has been identified as requiring focused attention when making strategic and operational decisions.

PROPOSED BUDGET - The Proposed Budget for the following year is presented to Governance at the December meeting.  At this meeting the Board reviews the budget and may direct management to include certain items approved at the December meeting before the budget is approved.

RETURN ON REVENUES - This ratio is an indication of the Society’s overall financial position.  However, it does not take into consideration the investment employed to produce the net contribution nor does it provide a long-term view of the Society. This ratio is calculated by dividing Net Contribution from Operations by Total Operating Revenues.

REVENUES - Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) resulting from the delivery or production of goods, rendering of services, or other activities that constitute the organization's ongoing major or central operations.

REVENUE GROWTH - This ratio measures the percentage increase or decrease in the current year’s revenue in relation to the prior year’s revenue.  It provides a relative measurement of growth against the Consumer Price Index or some other specific target of the economy or industry.  This ratio is calculated by dividing Current Year’s Total Revenues minus Prior Year’s Total Revenues, by Prior Year’s Total Revenues.

REVENUE RECOGNITION PRINCIPLE—The core principle requires an entity to recognize revenue when the entity transfers promised goods and services to the customer.  Revenue is recognized in an amount that reflects the consideration an entity expects to receive in exchange for those goods or services.

To achieve that core principle, an entity should apply the following steps:

1. Identify the contract(s) with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.

SOCIETY PROGRAMS - Governance approved programs that provide a direct benefit to the Society's members or directly support the advancement of chemistry as a scientific discipline, which are within Membership & Society Services, Scientific Advancement, Education and the Office of External Affairs and Communications.

SOCIETY PROGRAM PORTFOLIO MANAGEMENT— A holistic process designed to transparently manage the strategic addition, ongoing review and potential sun setting of programs within Membership & Society Services, Scientific Advancement, Education and the Office of External Affairs and Communications. 

TEMPORARILY RESTRICTED NET ASSETS - The part of the net assets with donor restrictions of a not-for-profit organization resulting from (a) contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the organization pursuant to those stipulations; (b) other asset enhancements and diminishments subject to the same kinds of stipulations; and (c) reclassifications to (or from) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or their fulfillment and removal by actions of the organization pursuant to those stipulations.

UNRELATED BUSINESS INCOME TAX - Generally, a tax-exempt organization with gross income of $1,000 or more for the year from an unrelated trade or business must file a tax return and pay any tax due.  A basic principle that establishes exemption from income taxes is that an organization's income is exempt only if its primary purpose is the type of activity for which it claims exemption.  Income received from a trade or business that has little or no relationship to an organization's exempt purpose is therefore considered to be unrelated business income and is subject to tax.

UNRESTRICTED NET ASSETS - Represents net assets that are free of donor-imposed restrictions.  They generally result from revenues recognized by providing services, producing and delivering goods, receiving unrestricted contributions, and receiving dividends or interest from investing in income-producing assets, less expenses incurred in providing services, producing and delivering goods, raising contributions and performing administrative functions.

USE TAX - The use tax is a complementary tax to the sales tax.  Use taxes are imposed on the privilege of ownership or possession, storage, use or consumption of tangible personal property.  The purpose of the use tax is to prevent sales tax evasion by out-of-state purchases and to make an equitable adjustment between local and interstate businesses.

VARIANCE - The difference between actual and budget performances.

WORKING CAPITAL - The excess of current assets over current liabilities.  The level of working capital is viewed as a measurement of liquidity.