4

401(k) Plan
Employee benefit plan authorized by Internal Revenue Code section 401(k), whereby an employer establishes an
account for each participating employee and each participant elects to deposit a portion of his or her salary into the
account. The amount deposited is not subject to income tax. This is the most common type of salary reduction plans.

401K & Roth 401K

A 401K is a savings vehicle that allows an employee to defer some of their compensation into an investment-based
retirement account. The deferred money is usually not subject to tax until it is withdrawn; however, an employee with a
Roth 401K can make contributions after taxes. Additionally, some employers choose to match the contributions made by
their employees up to a certain percentage.

Account (Acct)
Formal record that represents, in words, money or other unit of measurement, certain resources, claims to such
resources, transactions or other events that result in changes to those resources and claims.

Account Payable (AP)

Amount owed to a CREDITOR for delivered goods or completed services.

Account Receivable (AR)

Claim against a DEBTOR for an uncollected amount, generally from a completed transaction of sales or services
rendered.

Accountant
Person skilled in the recording and reporting of financial transactions.

Accounting (Acctg)
Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing,
and summarization in the FINANCIAL STATEMENTS.

Accounting Cycle
The sequence of steps followed in the accounting process to measure business transactions and transform the
measurements into FINANCIAL STATEMENTS for a specific period.

Accrual
The recognition of an expense or revenue that has occurred but has not yet been recorded.

Accrual Accounting
The attempt to record the financial effects of transactions and other events in the periods in which those transactions or
events occur rather than only in the periods in which cash is received or paid by the business, using all the techniques
developed by accountants to apply the MATCHING PRINCIPLE.

Accrual Basis
Method of ACCOUNTING that recognizes REVENUE when earned, rather than when collected. Expenses are recognized
when incurred rather than when paid.

Accrued Expense
An expense that has occurred but is not recognized in the accounts.

Accrued Interest
INTEREST that has accumulated between the most recent payment and the sale of a BOND or other fixed-income
security.

Accumulated Depreciation
Total DEPRECIATION pertaining to an ASSET or group of assets from the time the assets were placed in services until the
date of the FINANCIAL STATEMENT or tax return. This total is the CONTRA ACCOUNT to the related asset account.

Accumulation
Profits that are not paid out as DIVIDENDS but are instead added to the company’s capital base.
Acquisition
One company taking over controlling interest in another company.

Additional Paid in Capital

Amounts paid for stock in excess of its PAR VALUE or STATED VALUE. Also, other amounts paid by stockholders and
charged to EQUITY ACCOUNTS other than CAPITAL STOCK.

Adjusted Basis
After a taxpayer's basis in property is determined, it must be adjusted upward to include any additions of capital to the
property and reduced by any returns of capital to the taxpayer. Additions might include improvements to the property
and subtractions may include depreciation or depletion. A taxpayer's adjusted basis in property is deducted from the
amount realized to find the gain or loss on sale or disposition.

Adjusted Gross Income

Gross income reduced by business and other specified expenses of individual taxpayers. The amount of adjusted gross
income affects the extent to which medical expenses, non-business casualty and theft losses and charitable
contributions may be deductible. It is also an important figure in the basis of many other individual planning issues as
well as a key line item on the IRS form 1040 and required state forms.

Adjusted Trial Balance

A trial balance prepared after all adjusting entries have been recorded and posted to the accounts. Should have equal
credit and debit totals.

Adjusting Journal Entry

An accounting entry made into a subsidiary ledger called the General journal to account for a periods changes, omissions
or other financial data required to be reported "in the books" but not usually posted to the journals used for typical
period transactions (the cash receipts journal, cash disbursements journal, the payroll journal, sales journal and so on)
the entry is posted to the general ledger accounts directly and usually will be numbered itself, dated and have an
explanation. Example: AJE# 1 12-31-2003, debit Cash in bank $1,000. Credit interest income $1,000, to record interest
income on business bank account at year end, not recorded in cash receipts journal but credited by the bank. (Cross-
reference bank reconciliation and account where it was found)

Affiliated Company
Company, or other organization related through common ownership, common control of management or owners, or
through some other control mechanism, such as a long-term LEASE.

Allocate
To set aside for a specific reason.

Allowance for Doubtful Accounts/Allowance for Bad Debts

A contra-asset account used to reduce ACCOUNTS RECEIVABLE to the amount that is expected to be collected in cash.

Amortization
Gradual and periodic reduction of any amount, such as the periodic writedown of a BOND premium, the cost of an
intangible ASSET or periodic payment Of MORTGAGES or other DEBT.

Annual Report
Report to the stockholders of a company which includes the company's annual, audited BALANCE SHEET and related
statements of earnings, stockholders' or owners' equity and cash flows, as well as other financial and business
information.

Appreciation
Increase in the value of an ASSET such as a stock, BOND, commodity, or real estate.

Asset
An economic resource that is expected to be of benefit in the future. Probable future economic benefits obtained as a
result of past transactions or events. Anything of value to which the firm has a legal claim. Any owned tangible or
intangible object having economic value useful to the owner.

At Par
At a price equal to the face, or nominal, value of a security.
Audit
A professional examination of a company’s financial statement by a professional accountant or group to determine that
the statement has been presented fairly and prepared using GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Auditor
Person who AUDITS financial accounts and records kept by others. Includes both public accounting firms registered with
the PCAOB and associated persons thereof.

Authorized Shares
Maximum number of shares of any class a company may legally create under the terms of its articles of incorporation.

Average Days’ Sales Uncollected

A ratio that shows the average length of time it takes a company to receive payment for credit sales.

Bad Debt/Doubtful Accounts

All or portion of an ACCOUNT, loan, or note receivable considered to be uncollectible.

Balance
Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of
ACCOUNTING used in its preparation and presentation of a specified date the entity's ASSETS, LIABILITIES and the
EQUITY of its owners. Also known as a STATEMENT OF FINANCIAL CONDITION.

Balance sheet (BS)

A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner or shareholder
equity, at a given time.

Bank Reconciliation
A process by which an accountant determines whether and why there is a difference between the balance shown on the
bank statement and the balance of the cash account in the firm’s GENERAL LEDGER.

Bank Statement
A periodic statement, usually monthly, that a bank sends to the holder of a checking account showing the balance in the
account at the beginning of the month, during, and at the end of the month.

Bankruptcy
Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are liquidated after being satisfied
to the greatest extent possible by the DEBTOR'S ASSETS. During bankruptcy, the debtor's assets are held and managed
by a court appointed TRUSTEE.

Beginning Inventory
The quantity of merchandise available for sale at the beginning of an ACCOUNTING period.

Board of Directors
Individuals responsible for overseeing the affairs of an entity, including the election of its officers. The board of a
CORPORATION that issues stock is elected by stockholders.

Bond
One type of long-term PROMISSORY NOTE, frequently issued to the public as a SECURITY regulated under federal
securities laws or state BLUE SKY LAWS. Bonds can either be registered in the owner's name or are issued as bearer
instruments.

Bond Discount
The amount below PAR VALUE that a BOND sells for.

Bond Indenture
An additional agreement to a BOND issue that defines the rights, privileges, and limitations of BONDHOLDERS.

Bondholder
A person who owns a BOND certificate issued by a government or CORPORATION.

Book Value
Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of a company.
Also known as CARRYING VALUE.

Bookkeeping
The process of recording financial transactions and keeping financial records.

Budget
Financial plan that serves as an estimate of future cost, REVENUES, or both.

Business Combinations
Combining of two entities. Under the PURCHASE METHOD OF ACCOUNTING, one entity is deemed to acquire another
and there is a new basis of accounting for the ASSETS and LIABILITIES of the acquired company. In a POOLING OF
INTERESTS, two entities merge through an exchange of COMMON STOCK and there is no change in the CARRYING VALUE
of the assets or liabilities.

Capital (CAP)
A financial asset or the value of a financial asset, such as cash or goods. Working capital is calculated by taking your
current assets subtracted from current liabilities—basically the money or assets an organization can put to work.

Capital Expenditure
Outlay of money to acquire or improve capital assets such as buildings and machinery.

Capital Gain
Portion of the total GAIN recognized on the sale or exchange of a noninventory asset which is not taxed as ORDINARY
INCOME. Capital gains have historically been taxed at a lower rate than ordinary income.

Capital Stock
Ownership shares of a CORPORATION authorized by its ARTICLES OF INCORPORATION. The money value assigned to a
corporation's issued shares. The BALANCE SHEET account with the aggregate amount of the PAR VALUE or STATED
VALUE of all stock issued by a corporation.

Capitalize
Convert a schedule of INCOME into a principal amount, called capitalized value, by dividing by a rate of INTEREST.

Capitalized Cost
Expenditure identified with goods or services acquired and measured by the amount of cash paid or the market value of
other property, CAPITAL STOCK, or services surrendered. Expenditures that are written off during two or more
accounting periods.

Capitalized Interest
INTEREST cost incurred during the time necessary to bring an ASSET to the condition and location for its intended use
and included as part of the HISTORICAL COST of acquiring the asset.

Capitalized Lease
LEASE recorded as an ASSET acquisition accompanied by a corresponding LIABILITY by the LESSEE.

Carrying Value
Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of a company.
Also known as BOOK VALUE.

Cash
ASSET account on a balance sheet representing paper currency and coins, negotiable money orders and checks, bank
balances, and certain short-term government securities.

Cash Account
Brokerage firm account whose transactions are settled on a cash basis.

Cash Basis
Method of bookkeeping by which REVENUES and EXPENDITURES are recorded when they are received and paid.

Cash Dividend
Distribution of a CORPORATION’s earnings to stockholders in the form of CASH.
Cash Equivalents
Short-term (generally less than three months), highly liquid INVESTMENTS that are convertible to known amounts of
cash.

Cash Flows
Net of cash receipts and cash disbursements relating to a particular activity during a specified accounting period.

Cash Payments Journal

A multicolumn journal used to record sums of cash paid out for expenses.

Cash Receipts Journal

A multicolumn journal used to record business transactions involving the receipt of CASH from other individuals or
businesses.

Casualty Loss
Any loss of an asset due to fire storm act of nature causing asset damage from unexpected or accidental force.
Generally, it is deductible regardless of whether it is business or personal.

Chief Executive Officer (CEO)

Officer of a firm principally responsible for the activities of a COMPANY.

Chief Financial Officer (CFO)

Executive officer who is responsible for handling funds, signing CHECKS, keeping financial records, and financial planning
for a CORPORATION.

Close
To clear the BALANCES of temporary accounts in order to be ready for the next accounting period.

Closed-End Mutual Fund

MUTUAL FUND with a fixed number of shares outstanding that may be bought or sold. CMO - See COLLATERALIZED
MORTGAGE OBLIGATION.

Closing Entry
A journal entry made at the end of an accounting period in order to prepare for the next accounting period by clearing
the BALANCES of temporary accounts and summarizing the period’s REVENUES and expenses.

Collateral
ASSET provided to a CREDITOR as security for a loan.

Combined Financial Statement

FINANCIAL STATEMENT comprising the accounts of two or more entities.

Commission
Percentage of the selling price of the property, paid by the seller.

Common Stock
CAPITAL STOCK having no preferences generally in terms of dividends, voting rights or distributions.

Company
Organization engaged in business as a PROPRIETORSHIP, PARTNERSHIP, CORPORATION, or other form of enterprise.

Comparative Financial Statement

FINANCIAL STATEMENT presentation in which the current amounts and the corresponding amounts for previous periods
or dates also are shown.

Compensate
To pay or make payment for something.

Compensatory Balance
Funds that a borrower must keep on deposit as required by a bank.

Compilation
Presentation of financial statement data without the ACCOUNTANT'S assurance as to conformity with GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Comprehensive Income
Change in EQUITY of a business enterprise during a period from transactions and other events and circumstances from
sources not shown in the income statement. The period includes all changes in equity except those resulting from
INVESTMENTS by owners and distributions to owners.

Consolidated Financial Statements

Combined FINANCIAL STATEMENTS of a parent company and one or more of its subsidiaries as one economic unit.

Consolidation
BUSINESS COMBINATION of two or more entities that occurs when the entities transfer all of their NET ASSETS to a new
entity created for that purpose.

Consumer Goods
Goods bought for personal or household use, as distinguished from capital goods or producer’s goods, which are used to
produce other goods.

Contingency
An event that might happen but that is not likely or planned.

Contingent Liability
Potential LIABILITY arising from a past transaction or a subsequent event.

Contra Account
ACCOUNT considered to be an offset to another account. Generally established to reduce the other account to amounts
that can be realized or collected.

Contra-Liability Account
A deduction from a LIABILITY, such as discounts on notes payable, which is a deduction from the balance of notes
payable.

Contract
In general, agreement by which rights or acts are exchanged for lawful consideration.

Contributed Capital
The stockholders’ investment in a CORPORATION.

Contribution Margin
The excess of REVENUES over all variable costs related to a particular sales volume.

Convertible Stock
Stock that may be exchanged for other SECURITIES of the issuer.

Copyright
An exclusive right granted by the federal government to the possessor to publish and sell literary, musical, or other
artistic materials for a period of the author’s life plus 50 years, including computer programs.

Corporate Bond
DEBT instrument issued by a private CORPORATION, as distinct from one issued by a government agency or a
municipality.

Corporate Income Tax

The TAX that an incorporated business must pay to the federal government and, often, to state and city governments as
well.

Corporation
Form of doing business pursuant to a charter granted by a state or federal government. Corporations typically are
characterized by the issuance of freely transferable CAPITAL STOCK, perpetual life, centralized MANAGEMENT, and
limitation of owners' LIABILITY to the amount they INVEST in the business.

Cost Basis
Original price of an ASSET, used in determining CAPITAL GAIN.
Cost of Capital
Rate of return that a business could earn if it chose another investment with equivalent risk.

Cost of Goods Sold

Figure representing the cost of buying raw materials and producing finished goods.

Coupon
INTEREST rate on a DEBT SECURITY the ISSUER promises to pay to the holder until maturity, expressed as an annual
percentage of FACE VALUE.

Coupon Bond
A BOND that is usually not registered with the issuing CORPORATION but instead bears interest coupons stating the
amount of INTEREST due and the payment date.

Credit
Entry on the right side of a DOUBLE-ENTRY BOOKKEEPING system that represents the reduction of an ASSET or expense
or the addition to a LIABILITY or RVENUE.

Credit Agreement
Arrangement in which one party borrows or takes possession in the present by promising to pay in the future.

Credit Balance
BALANCE remaining after one of a series of bookkeeping entries. This amount represents a LIABILITY or income to the
entity.

Creditor
Party that loans money or other ASSETS to another party.

Current Asset
ASSET that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating
cycle, or within a year if more than one cycle is completed each year.

Current Liability
Obligation whose LIQUIDATION is expected to require the use of existing resources classified as CURRENT ASSETS, or the
creation of other current liabilities.

Current Value
1) Value of an ASSET at the present time as compared with the asset's HISTORICAL COST. (2) In finance, the amount
determined by discounting the future revenue stream of an asset using COMPOUND INTEREST PRINCIPLES.

Current Yield
Annual INTEREST on a BOND divided by the market price.

Debit
Entry on the left side of a DOUBLE-ENTRY BOOKKEEPING system that represents the addition of an ASSET or expense or
the reduction to a LIABILITY or REVENUE.

Debit Balance
BALANCE remaining after one or a series of bookkeeping entries. This amount represents an ASSET or an expense of the
entity.

Debt
General name for money, notes, BONDS, goods or services which represent amounts owed.

Debt Instrument
Written promise to repay a DEBT.

Debt Retirement
Repayment of DEBT.

Debt Security
Document which is evidence of an obligation or LIABILITY.

Debtor
Party owing money or other ASSETS to a CREDITOR.

Declare
Authorize the payment of DIVIDEND on a specified date, an act of the BOARD OF DIRECTORS of a CORPORATION.

Deferral
The postponement of the date that an expense already paid or incurred, or of a REVENUE already received, is entered in
the LEDGER.

Deferred Charge
Income received but not earned until all events have occurred. Deferred income is reflected as a LIABILITY.

Deferred Income Taxes

ASSETS or LIABILITIES that arise from timing or measurement differences between tax and accounting principles.

Deferred Interest Bond

BOND that pays INTEREST at a later date.

Deferred Payment Annuity

ANNUITY whose contract provides that payments to the annuitant be postponed until a number of periods have
elapsed.

Deficit
Financial shortage that occurs when LIABILITIES exceed ASSETS.

Depreciation
Expense allowance made for wear and tear on an ASSET over its estimated useful life.

Derivatives
Financial instruments whose value varies with the value of an underlying asset (such as a stock, BOND, commodity or
currency) or index such as interest rates. Financial instruments whose characteristics and value depend on the
characterization of an underlying instrument or asset.

Detailed Income Statement

A complete and explicit statement of an economic entity’s financial activities and holdings.

Direct Labor Costs

The labor cost is for specific work that can be easily and economically traced to an end product.

Direct Material
A material that will become part of a finished product and can be easily and economically traced to specific product
units.

Disbursement
Payment by cash or check.

Discontinued Operations
Portion of a business that is planned to be or is discontinued.

Discount
Reduction from the full amount of a price or DEBT.

Discount Bond
BOND selling below its REDEMPTION VALUE.

Discount Rate
Rate at which INTEREST is deducted in advance of the issuance, purchasing, selling, or lending of a financial instrument.
Also, the rate used to determine the CURRENT VALUE, or present value, of an ASSET or income stream.

Discount Yield
Yield on a SECURITY sold at a DISCOUNT.
Dissolution
Termination of a CORPORATION.

Dividends
Distribution of earnings to owners of a CORPORATION in CASH, other ASSETS of the corporation, or the corporation's
CAPITAL STOCK.

Dividends in Arrears
DIVIDENDS on cumulative PREFERRED STOCK that remain unpaid in the year they are due.

Dividends Payable
A LIABILITY for payment of a COMPANY’s earnings to its shareholders.

Dividends Yield
Used to measure the current return to an investor in a stock.

Double-Entry Bookkeeping
Method of recording financial transactions in which each transaction is entered in two or more accounts and involves
two-way, self-balancing posting. Total DEBITS must equal total CREDITS.

Due Date
Each governing agency and its forms scheduled reporting and most importantly payments have a required due date. It is
this date that if most files timely may result in a penalty, fine, and commence interest charges.

Earned Income
Wages, salaries, professional fees, and other amounts received as compensation for services rendered.

Earnings Per Share (EPS)

Measure of performance calculated by dividing the net earnings of a company by the average number of shares
outstanding during a period.

Employee Benefit Plan

Compensation arrangement, generally in writing, used by employers in addition to salary or wages. Some plans such as
group term life insurance, medical insurance and qualified retirement plans are treated favorably under the tax law.
Most common qualified retirement plans are: (1) defined benefit plans - a promise to pay participants specified benefits
that are determinable and based on such factors as age, years of service, and compensation; or (2) defined contribution
plans - provide an individual account for each participant and benefits based on items such as amounts contributed to
the account by the employer and employee and investment experience. This type includes PROFIT-SHARING PLANS,
EMPLOYEE STOCK OWNERSHIP PLANS and 401(k) PLANS.

Ending Inventory
Merchandise on hand at the end of an accounting period

Entrepreneur
Person who takes on the risks of starting a new business.

Equity
Residual INTEREST in the ASSETS of an entity that remains after deducting its LIABILITIES. Also, the amount of a business'
total assets less total liabilities. Also, the third section of a BALANCE SHEET, the other two being assets and liabilities.

Equity Account
ACCOUNT in the EQUITY section of the BALANCE SHEET. Includes CAPITAL STOCK, ADDITIONAL PAID IN CAPITAL and
RETAINED EARNINGS.

Error
Act that departs from what should be done; imprudent deviation, unintentional mistake or omission.

Expenditure
Payment, either in CASH, by assuming a LIABILITY, or by surrendering ASSET.

Expense
Something spent on a specific item or for a particular purpose.

Face Value
Amount due at maturity from a BOND or note.

Fair Market Value

Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and
both having reasonable knowledge of the relevant facts.

Federal Income Taxes

Taxes on NET INCOME that must be paid to the federal government by individuals and businesses.

Finance
The science of the management of money and other financial ASSETS.

Financial Statements
Presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS OFCASH FLOW, or
any supporting statement that is intended to communicate an entity's financial position at a point in time and its results
of operations for a period then ended.

Finished Goods
The products that have been made and are ready for sale.

Fiscal Year
Period of 12 consecutive months chosen by an entity as its ACCOUNTING period which may or may not be a calendar
year. Fixed Asset - Any tangible ASSET with a life of more than one year used in an entity's operations.

Fixed Assets
Tangible LONG TERM ASSETS used in the continuing operation of a business that are unlikely to change for a long time.

Fixture
Attachment to real property that is not intended to be moved and would create damage to the property if it were
moved.

Forecast
Prospective FINANCIAL STATEMENTS that are an entity's expected financial position, results of operations, and cash
flows.

Foreclosure
Seizure of COLLATERAL by a CREDITOR when DEFAULT under a loan agreement occurs.

Foreign Corporation
A corporation which is not organized under the laws of ones territories or states. Taxing of foreign corporations depends
on whether the corporation has Nexus or effectively connected income in that state.

Foreign Exchange
Instruments employed in making payments between countries.

Foreign Tax Credit

A U.S. taxpayer that pays or accrues income tax to a foreign country may elect to credit or deduct these taxes in a
determinable us dollar amount. This is usually done on the annual individual tax return and there is s specific form
provided for this.

Franchise
Legal arrangement whereby the owner of a trade name, franchisor, contracts with a party that wants to use the name
on a non-exclusive basis to sell goods or services, franchisee. Frequently, the franchise agreement grants strict
supervisory powers to the franchisor over the franchisee which, nevertheless, is an independent business.

Franchise Tax
State tax which is imposed on a state-chartered CORPORATION for the right to do business under its corporate name.

Future Value
The amount that an investment will be worth at a future date if it is invested at compound interest.

Gain
Excess of REVENUES received over costs relating to a specific transaction.

General Journal
The simple and most flexible type of journal.

General Ledger
Collection of all ASSET, LIABILITY, owners’ EQUITY, REVENUE, and expense accounts.

General Partnership
PARTNERSHIP with no limited partners.

Gift
A valid transfer of property from one taxpayer to another without consideration or compensation. A gift may be subject
to the unified estate and gift transfer tax.

Goods Available for Sale

The sum of beginning inventory and the net cost of purchases during a period; the total goods available for sale to
customers during an accounting period.

Goodwill
Premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible ASSETS less
LIABILITIES assumed.

Gross Income
The beginning point for the determination of income, including income from whatever sources derived.

Gross Margin
The difference between NET SALES and COST OF GOODS SOLD.

Gross Sales
The total amount of sales for cash and on credit accumulated during a specific accounting period.

Historical Cost
Original cost of an asset to an entity.

Income
Inflow of REVENUE during a period of time.

Income from Operation

Gross margin with operating expenses subtracted.

Income Statement (a.k.a. Profit and loss statement (P&L))

Summary of the effect of REVENUES and expenses over a period of time.

Income Summary
A temporary account used during the closing process that holds a summary of all REVENUES and EXPENSES before the
NET INCOME or loss is transferred to the capital account.

Incorporation
Process by which a COMPANY receives a state charter allowing it to operate as a CORPORATION.

Incremental Cash Flow

Net of cash outflows and inflows attributable to a corporate investment project.

Indirect Labor Costs

Labor costs for production-related activities that cannot be connected with or conveniently and economically traced to a
specific end product.

Indirect Materials
Minor materials and other production supplies that cannot be conveniently and economically traced to specific
products.

Indirect Method
The procedure for converting the INCOME STATEMENT from an ACCRUAL to a CASH BASIS.

Inflation
Rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the
market.

Inflation Rate
Rate of change in prices.

Insolvency
Inability to pay DEBTS when due.

Insolvent
When an entity's LIABILITIES exceed its ASSETS.

Insurance
System whereby individuals and companies that are concerned about potential hazards pay premiums to an insurance
company, which reimburses them in the event of loss.

Insured Account
Account at a bank, savings and loan association, credit union, or brokerage firm that belongs to a federal or private
insurance organization.

Intangible Asset
Asset having no physical existence such as trademarks and patents.

Interest
Payment for the use or forbearance of money.

Interest Rate
An amount of money charged for borrowing money or paid for the use of somebody else’s money.

Interim Financial Statements

FINANCIAL STATEMENTS that report the operations of an entity for less than one year.

Inventory
Tangible property held for sale, or materials used in a production process to make a product.

Invest
To put money into something such as property, stocks, or a business, in order to earn INTEREST or make a profit.

Investing
The practice of putting money into something, such as property, in order to earn INTEREST or make a profit.

Investment
EXPENDITURE used to purchase goods or services that could produce a return to the investor.

Investment Banker
Firm, acting as underwriter or agent, that serves as intermediary between an issuer of SECURITIES and the investing
public.

Investment Income
Income from SECURITIES and other non-business investments; such as DIVIDENDS, INTEREST, etc.

Invoice
Bill prepared by a seller of goods or services and submitted to the purchaser.
IRS
Federal agency that administers the INTERNAL REVENUE CODE. The IRS is part of the United States TreasuryDepartment.

Journal
Any book containing original entries of daily financial transactions.

Journal Entry
A notation in the GENERAL JOURNAL. It records a single transaction.

Labor
Physical or mental effort; work.

Land
Property; real estate.

Lay Off
Reduce the risk in standby commitment, under which the bankers agree to purchase and resell to the public any portion
of a stock issue not subscribed to by shareowners who hold rights.

Lease
Conveyance of land, buildings, equipment or other ASSETS from one person (LESSOR) to another (LESSEE) for a specific
period of time for monetary or other consideration, usually in the form of rent.

Lease Acquisition Cost

Price paid by a real estate limited partnership, when acquiring a lease, including legal fees and related expenses.

Lease-Purchase Agreement
Agreement providing that portions of lease payments may be applied toward the purchase of the property under lease.

Leasehold
Property INTEREST a LESSEE owns in the leased property.

Ledger
Any book of accounts containing the summaries of debit and credit entries.

Ledger Account
A complete record of the transactions recorded in each individual account.

Lender
Individual or firm that extends money to a borrower with the expectation of being repaid, usually with INTEREST.

Lessee
Person or entity that has the right to use property under the terms of a LEASE.

Lessor
Owner of property, the temporary use of which is transferred to another (LESSEE) under the terms of a LEASE.

Liability
DEBTS or OBLIGATIONS owed by one entity (DEBTOR) to another entity (CREDITOR) payable in money, goods, or
services.

Limited Company
A COMPANY, usually registered in the United Kingdom, that is organized to protect its owners from financial
responsibility.

Limited Liability
The obligation of owners of a CORPORATION, who are liable only for the amount of their INVESTMENT and are not liable
for the corporation’s DEBTS.
Limited Liability Company (LLC)
Form of doing business combining LIMITED LIABILITY for all owners (called members) with taxation as a PARTNERSHIP.
An LLC is formed by filing ARTICLES OF ORGANIZATION with an appropriate state official. Rules governing LLCs vary
significantly from state to state.

Limited Liability Partnership (LLP)

GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all its partners in
LIMITED LIABILITY. Rules governing LLPs vary significantly from state to state.

Limited Partnership
PARTNERSHIP in which one or more partners, but not all, have LIMITED LIABILITY to CREDITORS of the partnership.

Liquid Assets
Cash, cash equivalents, and marketable SECURITIES.

Liquidation
Winding up an activity by distributing its ASSETS to the appropriate parties and settling its DEBTS.

Liquidity
Available money on hand to pay bills when they are due and to take care of unexpected needs for CASH.

Loan
Transaction wherein an owner of property, called the LENDER allows another party, the borrower, to use the property.

Loan Value
Amount a LENDER is willing to LOAN against COLLATERAL.

Long Bond
BOND that matures in more than 10 years.

Long Term
HOLDING PERIOD of six months or longer, according to the Tax Reform Act of 1984 and applicable in calculating the
CAPITAL GAINS tax until 1988.

Long-Term Asset
An ASSET that has the following characteristics: (1) it has a useful life of more than one year; (2) it is acquired for use in
the operation of a business; and (3) it is not intended for resale to customers.

Long-Term Debt
DEBT with a maturity of more than one year from the current date.

Long-Term Gain
Subsequent to the Tax Reform Act of 1984 and prior to provisions of the Tax Reform Act of 1986 effective in 1988, a gain
on the sale of a capital asset where the HOLIDNG PERIOD was six months or more and the profit was subject to the
LONG-TERM CAPITAL GAINS tax.

Long-Term Investment
An INVESTMENT that management plans to hold for more than one year.

Long-Term Liability
A DEBT that falls due more than one year in the future or beyond the normal OPERATING CYCLE, or that is to be paid out
of noncurrent assets.

Long-Term Loss
Negative counterpart to LONG-TERM GAIN as defined by the same legislation.

Loss
Excess of EXPENDITURES over REVENUE for a period or activity. Also, for tax purposes, an excess of basis over the
amount realized in a transaction.

Loss on Disposal of Plant and Equipment

The account in which a LOSS is recorded when a firm sells or trades in an ASSET and receives an amount less than the
BOOK VALUE for that asset.
 M

Margin
Excess of selling price over the unit cost.

Margin of Profit
Relationship of gross profits to net sales.

Markdown
Amount subtracted from the selling price, when a customer sells SECURITIES to a DEALER in the OVER-THE-COUNTER
market.

Market
Public place where products or services are bought and sold, directly or through intermediaries.

Market Price
Last reported price at which a SECURITY was sold on an exchange.
Market Value
The price investors are willing to pay for a share of stock on the open market.

Marketing
Moving goods and services from the provider to consumer.

Markup
The amount added to the price of a product by a retailer to arrive at a selling price.

Material
The substance or substances from which something is made.

Materials Inventory Account

An INVENTORY account made up of the balances of materials, parts, and supplies on hand at a given time.

Maturity
The time at which payment of a loan or BOND becomes due.

Maturity Date
Date on which the principal amount of a NOTE, DRAFT, acceptance, BOND, or other DEBT INSTRUMENTbecomes due
and payable.

Merchandise
Items that can be bought or sold; commercial goods.

Merchandise Inventory
The goods on hand at any one time that are available for sale to customers in the regular course of business.

Mortgage
Legal instrument evidencing a security interest in ASSETS, usually real estate. Mortgages serve as COLLATERAL for
PROMISSORY NOTES.

Mutual Fund
Investment company which generally offers its shares to the general public and invests the proceeds in a diversified
portfolio of SECURITIES.

Negotiable
Something that can be sold or transferred to another party in exchange for money or as settlement of an obligation.

Net
Figure remaining after all relevant deductions have been made from the gross amount.

Net Assets
Excess of the value of SECURITIES owned, cash, receivables, and other ASSETS over the LIABILITIES of the company.
Net Current Assets
Difference between current assets and current liabilities; another name for WORKING CAPITAL.

Net Income
Excess or DEFICIT of total REVENUES and GAINS compared with total expenses and losses for an ACCOUNTING period.

Net Lease
In addition to the rental payment, the LESSEE assumes all property charges such as taxes, insurance, and maintenance.

Net Loss
The difference between expenses and REVENUES when expenses exceed revenues over a period of time.

Net Proceeds
Amount received from the sale or disposition of property, from a LOAN, or from the sale or issuance of securities after
deduction of all costs incurred in the transaction.

Net Sales
Sales at gross invoice amounts less any adjustments for returns, allowances, or discounts taken.

Net Worth
Similar to EQUITY, the excess of ASSETS over LIABILITIES.

Non-Sufficient Funds (NSF) Check

A CHECK drawn against an ACCOUNT in which there is not enough money to honor it.

Note
Written promise to pay a specified amount to a certain entity on demand or on a specified date.

Notes Payable
Collective term for written promissory notes that are due in less than one year.

Notes Receivable
Collective term for written promissory notes that are due in less than one year and are held by the entity to whom
payment is promised.

Obligations
Any amount which may require payment by an entity at a future time.

Operating Cycle
Period of time between the acquisition of goods and services involved in the manufacturing process and the final cash
realization resulting from sales and subsequent collections.

Operating Expense
An EXPENSE other than COST OF GOODS SOLD that is incurred in running a business.

Operating Lease
Type of LEASE, normally involving equipment, whereby the CONTRACT is written for considerably less than the life of the
equipment and the lesser handles all maintenance and servicing.

Operating Profit (or Loss)

The difference between the REVENUES of a business and the related costs and expenses, excluding INCOME derived
from a source other than its regular activities and before income deductions.

Organization
The act of arranging something in an orderly way.

Original Cost
In ACCOUNTING, all costs associated with the acquisition of an ASSET.

Outsourcing
The act or an instance of purchasing essential products or services from another COMPANY.
Outstanding
Not settled or paid.

Outstanding Check
A CHECK that has been written by the drawer and deducted on his or her records but has not reached the bank for
payment and is not deducted from the bank BALANCE by the time the bank issues its statement.

Owner’s Equity
The residual INTEREST in the assets of a business entity that remains after deducting the entity’s liabilities.

Paid in Capital
Portion of the stockholders' EQUITY which was paid in by the stockholders, as opposed to CAPITAL arising from
profitable operations.

Par
Equal to the nominal or face value of a SECURITY.

Par Value
Amount per share set in the ARTICLES OF INCORPORATION of a CORPORATION to be entered in the CAPITAL STOCKS
account where it is left permanently and signifies a cushion of EQUITY capital for the protection of CREDITORS.

Parent Company
Company that has a controlling interest in the COMMON STOCK of another.

Partnership
Relationship between two or more persons based on a written, oral, or implied agreement whereby they agree to carry
on a trade or business for profit and share the resulting profits. Unlike a CORPORATION'S shareholders, the partnership's
general partners are liable for the DEBTS of the partnership.

Passive Income
Includes income derived from such sources as dividends, interest, royalties, rents, amounts received from personal
service contracts, and income received as a beneficiary of an estate or trust.

Penalty
The various government codes contain numerous provisions which impose penalties on a taxpayer (any type of
taxpayer) for failure to perform a specific act or omitting vital information on a return.

Pension
Retirement plan offered by an employer for the benefit of an employee, usually at retirement, through a TRUSTEE who
controls the plan ASSETS.

Period
An interval of time with a specified length or characterized by certain conditions.

Petty Cash
A small amount of CASH that a company keeps on hand to pay for minor expenses in an office.

Physical Inventory
An actual count of all MERCHANDISE on hand at the end of an accounting period.

Plant
A building or group of buildings where something is made or processed; factory.

Pledged
ASSET placed in a TRUST and used as COLLATERAL for a DEBT.

Post-Closing Trial Balance

A trial BALANCE prepared at the end of an accounting period after all adjusting and closing entries have been posted; a
final check on the balance of the LEDGER.

Prepaid Expense
Cost incurred to acquire economically useful goods or services that are expected to be consumed in the revenue-earning
process within the operating cycle.

Present Value
CURRENT VALUE of a given future CASH flow stream, discounted at a given rate.

Principal
Face amount of a SECURITY, exclusive of any PREMIUM or INTEREST. The basis for INTEREST computations.

Production
The act or process of creating something.

Profit
Positive difference that results from selling products and services for more than the cost of producing these goods.
Profit Margin
Used to measure the percentage of each sales dollar that results in NET INCOME.

Profit Sharing Plan

DEFINED CONTRIBUTION PLAN characterized by the setting aside of a portion of an entity's profits in participant's
accounts.

Promissory Note
Evidence of a DEBT with specific amount due and interest rate. The note may specify a maturity date, or it may be
payable on demand. The promissory note may or may not accompany other instruments such as a Mortgage providing
security for the payment thereof.

Property, Plant, and Equipment

Long-term tangible assets used in the continuing operation of a business for a long time.

Proprietorship
Business owned by an individual without the limited liability protection of a CORPORATION or a LIMITED LIABILITY
COMPANY (LLC). Also known as SOLE PROPRIETORSHIP.

Purchase Order
Written authorization to a vendor to deliver specified goods or services at a stipulated price.

Purchases
A temporary ACCOUNT used under the PERIODIC INVENTORY SYSTEM to record the TOTAL COST of all MERCHANDISE
purchased for resale during an accounting period.

Purchases Discounts
Discounts taken by merchants in return for prompt payment for MERCHANDISE purchased for resale.

Purchases Returns and Allowances

A CONTRA ACCOUNT used under the PERIODIC INVENTORY SYSTEM to accumulate CASH refunds, credits on ACCOUNT,
and other allowances made by suppliers for unsatisfactory or incorrect MERCHANDISE that was originally purchased for
resale.

Quarter
Three-month intervals of the year.

Quarterly Reports
Another term for INTERIM FINANCIAL STATEMENTS.

Quick Assets
Assets that are or are expected to be converted into CASH in the near term: cash, accounts receivable, SHORT-TERM
INVESTMENTS.

Raw Material
Something in its natural state that will be used in a manufacturing process.
Raw Materials Inventory Account
Another term for MATERIALS INVENTORY ACCOUNT.

Real Estate
Piece of land and all physical property related to it, including houses, fences, landscaping, and all rights to the air above
and earth below the property.

Receivables
Amounts of money due from customers or other DEBTORS.

Reconcile
To resolve.

Reconciliation
Comparison of two numbers to demonstrate the basis for the difference between them.

Repairs
EXPENDITURES made in order to keep property in good condition but that do not appreciably prolong the life or increase
the value of the property.

Report
An oral or written description of something, such as a book, event, or situation.

Research and Development (R&D)

Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or improved
products and services. Development is the translation of research findings into a plan or design of new or improved
products and services.

Research and Development Costs

The EXPENSE of FUNDING RESEARCH AND DEVELOPMENT (R&D).

Restricted Assets
Cash or other ASSETS whose use in whole or in part is restricted for specific purposes bound by virtue of contracted
agreements.

Restricted Fund
Fund established to account for assets whose income must be used for purposes established by donors or grantors of
such ASSETS.

Retained Earnings
Accumulated undistributed earnings of a company retained for future needs or for future distribution to its owners.

Retained Earnings Account

The ACCOUNT that reflects the stockholders’ claim to the assets earned from operations and reinvested in corporate
operations.

Revenues
Sales of products, merchandise, and services; and earnings from INTEREST, DIVIDEND, rents.

S Corporation
A CORPORATION which, under the INTERNAL REVENUE CODE, is generally not subject to federal income taxes. Instead,
taxable income of the corporation is passed through to its stockholders in a manner similar to that of a PARTNERSHIP.

Sale
Any exchange of goods or services for money.

Sale-Leaseback Transaction
Sale of property by a seller who simultaneously leases the property back from the purchaser.

Sales Discount
A discount that is given to a buyer for early payment for a sale made on CREDIT.
Sales Tax
A TAX that is levied by a state or city government on the retail sale of goods and services.

Securities and Commodities Exchanges

Organized, national EXCHANGES where securities, options, and futures contracts are traded by members for their own
accounts and for the accounts of customers.

Securities and Exchange Commission (SEC)

Agency authorized by the United States Congress to regulate the financial reporting practices of most public
corporations.

Selling, General, and Administrative (SG&A) Expenses

Grouping of expenses reported on a company’s PROFIT and LOSS statement between COST OF GOODS SOLDand
INCOME deductions.

Share
Unit of EQUITY in a CORPORATION.

Shareholder
Owner of one or more shares of stock in a CORPORATION.

Shares Authorized
Number of shares of stock provided for in the articles of INCORPORATION of a COMPANY.

Shares Outstanding
The number of shares in a COMPANY that have been issued and remain in circulation.

Short Bond
BOND with a short MATURITY; a somewhat subjective concept, but generally meaning two years or less.

Short Coupon
BOND INTEREST payment covering less than the conventional six-month period.

Short Interest
Total amount of shares of stock that have been sold short and have not yet been repurchased to close out short
positions.

Short-Term
Current; ordinarily due within one year.

Short-Term Debt
All DEBT obligations coming due within one year; show on a balance sheet as CURRENT LIABILITIES.

Short-Term Gain or Loss

For TAX purposes, the PROFIT or LOSS realized from the sale of securities or other capital assets held six months or less.

Short-Term Investment
The temporary INVESTMENT of excess CASH, intended to be held until needed to pay current OBLIGATIONS.

Simple Interest
INTEREST calculation based only on the original PRINCIPAL amount.

Solvency
State of being able to meet maturing OBLIGATIONS as they come due.

Solvent
Capable of paying one’s financial obligations.

Spreadsheet
An ACCOUNTING or BOOKKEEPING application for use on a computer.

Stated Value
Per share amount set by the BOARD OF DIRECTORS to be placed in the CAPITAL STOCK account upon issuance of NO-
PAR VALUE.

Statement
Summary for customers of the transactions that occurred over the preceding month.

Statement of Cash Flows

One of the basic FINANCIAL STATEMENTS that isGENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) required as
part of a complete set of financial statements prepared in conformity with . It categorizes net cash provided or used
during a period as operating, investing and financing activities, and reconciles beginning and ending cash and cash
equivalents.

Statement of Financial Condition

Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of
ACCOUNTING used in its preparation and presentation as of a specified date, the entity's ASSETS, LIABILITIES and the
EQUITY of its owners. Also known as BALANCE SHEET.

Statement of Owner’s Equity

The financial STATEMENT that shows how and why an OWNER’S EQUITY, or capital, ACCOUNT has changed over s
specific financial PERIOD.

Stockholder
A person who owns shares of STOCK in a COMPANY.

Stockholders’ Equity
The OWNER'S EQUITY in a CORPORATION.

Straight-Line Depreciation
ACCOUNTING method that reflects an equal amount of wear and tear during each period of an ASSET'S useful life. For
instance, the annual STRAIGHT-LINE DEPRECIATION of a $2,500 asset expected to last five years is $500.

Subsidiary
COMPANY of which more than 50% of the voting shares are owned by another CORPORATION, called the PARENT
COMPANY.

Surplus
Not needed; extra.

T Account
The simplest form of an ACCOUNT, shaped like the letter T, in which increases and decreases in the account can be
recorded.

Tangible Asset
ASSETS having a physical existence, such as cash, land, buildings, machinery, or claims on property, investments or
goods in process.

Tax
Charge levied by a governmental unit on income, consumption, wealth, or other basis.

Tax Basis
Original cost of an ASSET, less ACCUMULATED DEPRECIATION, that goes into the calculation of a GAIN or LOSS for TAX
purposes.

Taxable Earnings
The amount of an employee’s earnings subject to a TAX.

Taxable Income
Taxable income is generally equal to a taxpayer's ADJUSTED GROSS INCOME during the TAX YEAR less any allowable
EXEMPTIONS and deductions.

Taxpayer Identification Number (TIN)

Any individual or other taxable entity that is required to file a return, statement or any other document with the IRSmust
indicate his (or its) taxpayer identification number. For an individual, the social security number is used, and if you do
not have a social security number, the IRS will assign you a TIN. A federal or employer ID number is assigned to other
types of entities and will use that as their TIN.

Term
Period of time during which the conditions of a CONTRACT will be carried out.

Term Loan
Loan for a specified time period.

Total Capitalization
Capital structure of a COMPANY, including LONG-TERM DEBT and all forms of EQUITY.

Total Cost
Sum of FIXED COSTS, semi-variable costs, and VARIABLE COSTS.

Total Gain
Excess of the proceeds realized on the sale of either INVENTORY or noninventory goods.

Trade
Buying or selling goods and services among companies, states, or countries, called commerce.

Trademark
Distinctive name, symbol, motto, or emblem that identifies a product, service, or firm.

Trader
Anyone who buys and sells goods or services for PROFIT, a DEALER or merchant.

Transaction
The act of transacting, especially a business agreement or exchange; event or condition recognized by an entry in the
book ACCOUNT.

Transfer
To move or cause to go from one place, person, or thing to another.

Treasurer
COMPANY officer responsible for the receipt, custody, INVESTMENT, and DISBURSEMENT of funds, for borrowings, and,
if it is a public company, for the maintenance of a MARKET for its securities.

Treasury
A place where private or public funds are controlled.

Treasury Bill
Short-term obligation that bears no INTEREST and is sold at a discount.

Treasury Bond
Long-term obligation that matures more than five years from issuance and bears INTEREST.

Treasury Note
Intermediate-term obligation that matures one to five years from issuance and bears INTEREST.

Trial Balance
A comparison of the total of DEBIT and CREDIT balances in the LEDGER to check that they are equal.

Trust
Ancient legal practice where one person (the GRANTOR) transfers the legal title to an ASSET, called the principal or
corpus, to another person (the TRUSTEE), with specific instructions about how the corpus is to be managed and
disposed.

Trustee
Person who is given legal title to, and management authority over, the property placed in a TRUST.

U
Unearned Income
Payments received for services which have not yet been performed.

Unearned Interest
INTEREST that has already been collected on a LOAN by a FINANCIAL INSTITUTION, but that cannot yet be counted as
part of earnings because the PRINCIPAL of the loan has not been OUTSTANDING long enough.

Unlimited Liability
The responsibility of all the partners in a COMPANY for its DEBT.

Unrealized Loss or Gain on Long-Term Investments

A BALANCE sheet ACCOUNT for entering increases or decreases in the value of long-term investments.

Unrealized Profit (or Loss)

PROFIT or LOSS that has not become actual.

Value
How much money something is worth.

Value-Added Tax (VAT)

Consumption TAX levied on the VALUE added to a product at each stage of its manufacturing cycle as well as at the time
of purchase by the ultimate consumer.

Vendor
Supplier of goods or services of a commercial nature; may be a manufacturer, importer, or wholesale distributor.

Wage
Payment for services of employees at an hourly rate.

Wholesale
The sale of goods in large quantities, especially to a person or COMPANY that plans to sell them at retail.

Wholesaler
Middleman or distributor who sells mainly to retailers, jobbers, other merchants, and industrial, commercial, and
institutional users as distinguished from consumers.

Withholding
Amount withheld or deducted from employee salaries by the employer and paid by the employer, for the employee, to
the proper authority.

Withholding Allowance
Each taxpayer is allowed to claim a withholding allowance, which exempts a certain amount of wages from being subject
to WITHHOLDING. The allowance is designed to prevent too much taxes being withheld from a taxpayers wages and a
person can compute this by completing form W-4 and submitting it to their employer.

Working Capital
Excess of CURRENT ASSETS over CURRENT LIABILITIES.

Worksheet
A type of working paper used as a preliminary step in the preparation of FINANCIAL STATEMENTS.

Write Off
Charging an ASSET ACCOUNT to EXPENSE or LOSS.

Zero-Coupon Bond
BOND on which the holder receives only one payment at maturity which includes both PRINCIPAL and INTEREST from
issuance to maturity.