Glossary
A retirement account to which an eligible employee can contribute a certain amount of his or her pretax salary; earnings are tax-deferred. Some employers may match a stated percentage of employee 401(k) contributions. The reduced cost and liability of 401(k) plans appeal to employers.
A qualified retirement plan similar to the 401(k), available to employees of nonprofit and government organizations.
The net of credits and debits for an account at the end of a reporting period.
The process of ensuring that the beginning balance plus the sum of all entries on an account statement equals the ending balance. After deposits, interest received, and credits are added and automatic withdrawals, outstanding checks, negotiated checks, and account charges are subtracted, if the resulting balance equals the ending balance on the statement, the account is reconciled.
An individual trained and knowledgeable in the profession of accountancy.
The function of compiling and providing financial information primarily by reports referred to as financial statements. Accounting includes bookkeeping, systems design, analysis and interpretation of accounting information.
Obligations to pay for goods or services that have been acquired on open accounts from suppliers. Accounts Payable is a current liability in the Balance Sheet.
Amounts due the company on account from customers who have bought merchandise or received services. Accounts Receivable is a current asset in the Balance Sheet.
The method of keeping accounts which shows all expenses incurred and income earned for a given period of time, even though such expenses and income may not actually have been paid or received in cash during the same period of time.
An expense incurred, but not yet paid.
Revenue earned, but not yet collected.
An account to which estimated depreciation is added.
A person who participates in a qualified pension, stock bonus, or profit-sharing plan, a qualified annuity plan, a tax-sheltered annuity (TSA) plan, a simplified employee pension plan, or a local, state, county, or federal retirement plan has active-participant status, as does his or her spouse.
A person who analyzes probability and risk estimates for insurance contracts and retirement plans.
A mortgage with an interest rate that changes periodically based on a measure or an index, such as the rate on US Treasury bills or the average national mortgage rate. Borrowers assume a degree of risk in order to receive a lower rate at the beginning of an ARM.
An entry made in the general journal at the end of an accounting period to bring certain accounts up to date.
The amount of income subject to federal income taxes. To determine AGI, subtract deductions (e.g., business expenses or IRA contributions) from gross income (employment income, interest income, dividends, and capital gains).
Money received from an employer before it is actually earned.
A person authorized by another to act on their behalf. Thus, an agent can enter into contracts and other such legal binding functions on behalf of another. Usually, the corporation’s officers act as corporate agents.
A mutual fund designed to maximize long-term capital growth, rather than dividend income, by investing in narrow market segments, small company stocks, and companies with high growth rates.
The formula that governs employer contributions to employee profit-sharing plans and redistributes funds forfeited by employees who leave these plans.
A tax calculation designed to prevent taxpayers from escaping their fair share of tax liability by taking numerous tax breaks; it adds certain tax preference items back into adjusted gross income. If AMT liability is greater than regular tax liability, the taxpayer must pay the AMT amount.
A federal tax credit that compensates families for a certain amount of tuition per student per year for the first four years of post-secondary education.
A way of measuring the consumption of the value of long-term assets like equipment or buildings. This process gradually eliminates a debt, loan, or mortgage over a period of time. It can also be used to deduct capital expenses over a period of time.
Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.
The yearly cost of credit or a loan, expressed as a simple percentage. All consumer credit agreements and loans are legally required to disclose the APR.
A yearly statement that describes company management, operations, and financial information. The Securities and Exchange Commission (SEC) requires all corporations issuing registered stock to publish annual reports, which are sent to shareholders and also made available for public review.
The person to whom an annuity is payable.
A long-term contract sold by life insurance companies that guarantees fixed or variable payments to the purchaser at regular intervals. Payments are usually scheduled to begin at a future time, such as retirement. Some annuities provide tax-deferred earnings, often as part of retirement plans.
The contract for an annuity offering income for life may include a death benefit for the total premiums paid. When the annuitant dies, the annuity cash refund will be the net sum of premiums paid minus the amount received in annuity payments.
An option in an annuity contract that allows the annuity owner to select a future level of income covering a specified number of years, generally 10 years. If the annuitant dies before the end of this period, the remaining obligation is transferred to a designated beneficiary.
An annuity option for two or more individuals where payments cease at the death of the first annuitant.
An annuity option that provides payments for two designated annuitants. Upon the death of the first annuitant, the surviving annuitant receives prearranged, continued payments for life, based on a percentage received by the first annuitant.
In a contributory retirement plan, the annuity beneficiary of a deceased retiree receives the accumulated balance of the pension fund, which is referred to as the annuity modified refund.
The choice of how payments from an annuity will be received: as a fixed dollar amount, for a fixed period, or over the lifetime(s) of one or two annuitants.
A fee to process a loan application.
An assessment of a property’s value by a qualified appraiser, based on information from recent sales of similar properties.
Increase in value. Often used with reference to an asset, such as land, building, stocks or bonds.
The articles are the primary legal document of a corporation; they serve as a corporation’s constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the corporation as required by state law.
LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation’s articles of incorporation.
Anything of value owned or controlled by a corporation or individual. An asset may be tangible or intangible.
A process that divides investments among different asset classes, such as stocks, bonds, and cash, in order to reduce portfolio risk.
A specific category of assets or investments, such as cash, bonds, stocks, or real estate. Assets in the same class have similar characteristics and behave similarly in the marketplace.
The legal transfer of ownership of an asset to another person or entity.
A name under which a corporation conducts business that is not the legal name of the corporation as shown in its articles of incorporation. If a corporation does business under an assumed name, it may be required to file registration of the assumed name with the state. Also known as a Fictitious Business Name.
The total number of shares a corporation is authorized to sell. This number is specified in the articles of incorporation. All of the shares authorized need not be issued.
Automatically depositing mutual fund dividends or capital gains back into an account to buy additional shares.
Accounts receivable that are uncollectible used in accrual method accounting.
Amount arrived at by adding all debits and subtracting all credits to ensure total debits equal the total credits.
Statement, at a particular point in time, of the financial position of a business or organization. This is generally divided into three parts: assets, liabilities and ownership, or equity. Also known as Statement of Financial Position.
A type of mortgage with a final payment that is considerably larger than the preceding payments, typically used when borrowers anticipate receiving a large sum of cash to pay the balance or when they expect to refinance before the final payment.
Balance of a bank account when funds withdrawn exceed funds deposited.
Analysis that accounts for the difference between the balance shown on the bank statement and the balance shown in the accounting records on a given date.
Legal status of a person/corporation who/which is unable to pay its debts as they become due and who/which has made a transfer of property or of a right or interest in property to a trustee for the benefit of creditors.
The state of being insolvent or unable to pay outstanding debt. Declaring bankruptcy is expensive, and it can have adverse effects on one’s credit in the future. These are some common ways to apply for bankruptcy:
The total original cost (including any additional outlays) of an equity investment or a piece of property. This is used by the Internal Revenue Service to compute taxable gain, profit, or appreciation.
A measurement of variation in financial instruments, equal to .01%. For example, a yield that has increased from 8.97% to 9% has increased by 3 basis points.
An extended period during which market prices decline. The opposite of a bull market.
The person or entity named in a will, life insurance policy, qualified retirement plan, or annuity who will receive benefits upon the death of the insured or the plan participant.
When people pay taxes according to the amount of government aid (benefits) they receive. Examples of benefits the American public receives include (to name only a few): welfare, child care, Medicare and Medicaid. Some people believe it is only fair that people pay taxes based on the amount of government aid they receive.
A measure of a security’s price volatility relative to an appropriate market index. For example, the S&P 500 index is considered to have a beta of 1; stocks with betas greater than 1 experience more price fluctuations than that index, while the prices of stocks with betas less than 1 fluctuate less often.
Written document issued by the carrier of goods. Also, a receipt for goods and a contract to deliver goods.
The common stock of a company with a reputation for quality and a long history of earnings growth and dividend payments, such as General Electric, IBM, or DuPont.
A debt security issued by a corporation, government, or governmental agency that obligates the issuer to pay interest at predetermined intervals and repay the principal at maturity. A bond’s face value is the amount of money the holder will receive when the bond matures. The face value does not change, but the bond’s market value may fluctuate before maturity.
(1) The current value of a fixed asset as shown by the records; the difference between the original cost of the asset and the accumulated depreciation. (2) The difference between the accounts receivable and the allowance for bad debts. (3) The value of a share of stock as shown by the corporate books.
A journal in which transactions are recorded for the first time before summarizing or posting to ledger accounts. For example, purchase journals, cash receipts journals, accounts payable journals, disbursements journals, general journals and payroll journals are all books of original entry. See General Journal and Journal.
The recording of financial transactions electronically or manually. The record-keeping part of the accounting process.
A financial professional who facilitates the trading of services or property such as securities, real estate, insurance, or commodities.
A report of projected income and expenses for a given period.
An extended period of rising security prices in financial markets. The opposite of a bear market.
A plan for the future transfer of a business entity, involving legal, financial, tax, and family concerns.
A government levy on income for businesses.
A contract that provides for the purchase of all outstanding shares from a business owner. Generally, such contracts allow for a different ownership structure in the future.
An investment strategy that advocates holding securities for the long term and ignoring short-term price fluctuations.
Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. At the corporation’s initial meeting the bylaws are adopted. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend.
A limit on how much the interest rate can change either at each adjustment or during the life of the mortgage, e.g., “2/6” equates to 2% per year and 6% over life of loan.
A plan offering a variety of benefit options from which employees may choose, such as health insurance, life insurance, and retirement benefits.
A check that has cleared the bank and is returned to the depositor with his monthly statement.
Interest of the owner in the business that is the difference between Assets & Liabilities. Also called Equity or Net worth. In a corporation, capital represents the stockholders’ equity.
Assets, of either a tangible or intangible nature, owned or held by a business which are expected to be used or held over several fiscal periods.
Profit or gain realized from the sale or exchange of a capital asset. The amount is determined by calculating the difference between an asset’s purchase and sale price.
A payment to shareholders of profits realized on the sale of an investment company’s securities.
A tax on profits from the sale of securities or other assets.
A decrease in the value of an investment or capital asset from its purchase price.
An instant loan against a line of credit. Interest is usually charged on cash advances from the date the advance is made until it is repaid. Issuers may also charge transaction fees.