# Accounting and finance glossary ## A Account - A standardized record that represents a single categorized financial part of a business Accounting Period - The period when financial statements are prepared, usually on a monthly, quarterly, or yearly basis Accounting - The process of recording and reporting financial transactions Accounts Payable - The outgoing amount owed (but not paid) for goods or services bought Accounts Receivable - The incoming amount due (but not paid), usually after a sale or service has been completed Accrual Method - aka Accrual Basis, a system used by most businesses to record revenues and expenses when the transaction occurs (instead of money transferring), contrast with Cash Method Accruals - Expenses that were incurred but not paid (e.g., salaries, interest on a loan), which are usually included in accounts and adjusted once the invoice is received Acquisition - A company another company absorbs Adjusted Gross Income (AGI) - A tax evaluation of income, adjusted for certain deductions Aggressive Growth Fund - Very high-risk, high-return mutual funds Aging - Accounts receivables are sorted by age, and aging focuses on accounts that are overdue, often assigns percentages to categories of age Amortization - The decrease in value of an intangible asset over fixed periods, contrasts with depreciation Annual Report - A report for shareholders that breaks down a company's annual statements, cash flows and any other important financial information Appreciation - The opposite of depreciation, when an asset increases in value and the amount of depreciation decreases, only applicable in special circumstances in accounting but *very* common in investing Arrears - Bills that were due but haven't been paid Ask - A price a seller is willing to pay for a stock, typically compares with bid, often related to stock markets Asset - Thing of value that a business either owns or is due, which includes physical items, money and certain legal rights Asset Class - A type of asset, typically refers to investments Audit - The process of reviewing financial records to verify their accuracy and completeness, which includes internal auditing that accountants perform within an organization and independent audits by an outside party Average Cost Method - An inventory method that averages out the total value of all the inventory purchased to determine the Cost of Goods Sold ## B Back-to-Back Letters of Credit - Financing where a bank's letter of credit is collateral for another bank's letter of credit, often used to circumvent restrictions on a direct letter of credit or remove a bank's name from the documentation Bad Debt - Debts that can't be paid, which is usually a tax-deductible expense Balance Sheet - An annual statement that shows the financial position of a business with a summary of its assets and liabilities Bank - An entity that borrows money from entities to loan it to other entities Bankrupt - A state where a person or group has more liabilities than assets, LLCs use the word "insolvent" instead Bank Draft - A promised transfer of assets between banks, typically grouped together in "batch processing" to make the accounting more convenient Batch Processing - transferring multiple data transactions together to make bank transfers more convenient Bear Market - A market with a negative outlook, contrast to bull market Bid - A price a buyer is willing to pay for a stock, typically compares with ask, often related to stock markets Bid-Ask Spread - The difference between the buying and selling price Bond - aka Debenture or Loan Stock, a loan that doesn't have to be paid off until a certain number of years Bond Fund - A mutual fund made of bonds Book Value - The original cost paid for an asset (Historical Value) or its current value (Fair Market Value), whichever is lower Break-Even Point - The specific number where one additional unit of production will generate a profit Bubble - A market condition where the price of an object is *significantly* higher than its intrinsic value Bull Market - A market with a positive outlook, contrast to bear market ## C Capital - aka Startup Costs, money business owners invest to acquire assets and start operating Capital Allowances - aka Tax Credit, deductions from the total taxes a company has to pay, usually based on something the company has to do Capital Gains Tax - The tax on an asset that is sold for a profit, which is subject to adjustments from inflation, allowances and other factors to determine its taxable amount Cash Collateralized Loan - A loan with cash collateral Cash Method - aka Cash Basis, a system used by most businesses that only tracks paid invoices, contrast with Accrual Method Cash Flow - the amount of money coming into and out of a business during an accounting period, usually shown on a Cash Flow Statement or Statement of Cash Flows Cash Flow Forecast - A prediction of the cash flows of an upcoming financial period Chart of Accounts - A big list of all the accounts a business uses to organize and record financial transactions Charge Back - The act of cancelling a credit or debit card transaction before it has been processed, which will probably still charge the seller a fee Circulating Assets - Assets that turn from cash to goods and then back to cash again, which includes manufacturing materials and inventory Closing the Books - A term for making the final entries that bring the profit and loss accounts to zero for the next period and closing out the transactions that happened in that period, followed by Opening the Books Collection Account - An account with a past due balance Concentration Account - aka Omnibus Account, internal account for transferring large amounts of funds without identifying each originator Concentration Risk - Legal requirements regarding asset-holding that create percentage limits on how much a bank can lend to a single borrower Cost, Insurance, and Flight (CIF) - An international contract for sale where the seller agrees to pay shipping, insurance and freight charges before the item is delivered, and the buyer is fully responsible after delivery Cost of Goods Sold (COGS) - The reported cost of items that have been sold Common Stock - A share of a company that allows shareholders a portion of the Dividend, usually the highest risk but the highest rewards Compensating Error - Two mistakes that curiously cancelled each other out Compound Interest - interest accrued on the principal *and* interest based on the amounts every period, as opposed to Simple Interest Confirmation - aka Trade Confirmation, legally affirmed indication of a contractual trade, often includes a fill Consolidated Financial Statements - Combined financial statements of a parent company and all of its subsidiaries Consolidation - Combining all of a company's accounts into one single parent company Cost-Based Pricing - A pricing method where companies base their fees on the price of manufacturing Cost Center - A portion of a business that is focused on maintaining the business in a way that doesn't generate profit, such as accounting or custodial Coupon - Periodic interest payments on a bond that hasn't reached maturity, typically represented as a percentage. Creative Accounting - An underhanded way of making accounts appear more or less appealing to shareholders than they actually are, which many accountants would call fraud Credit - (bookkeeping) Any record keeping that decreases assets or expenses or increases capital or liability (business) When a supplier agrees to allow the buyer to pay after receiving the goods or services, the opposite of a Debit Credit Card - A plastic card designed to purchase things without currency, has a credit limit designed to obtain cash advances Credit Note - A document sent to a customer that cancel's their debt, usually for defective goods or poor service Creditors - Suppliers that a business owes money to Currency - Banknotes and coins in circulation as a means of exchange Current - Generally, "current" in accounting means it happens within the next 12-month cycle Current Assets - aka Convertible Assets, assets that can be turned into cash quickly and include money in banks, money owed, petty cash, raw materials and stock Current Cost Accounting - aka Cost Accounting, a type of accounting where assets are valued at their current market value instead of their historical cost Current Liabilities - Things that are owed within the next 12 months, which includes things essential to day-to-day operating such as include bank overdrafts, short-term loans and lines of credit with suppliers Cut-off Procedures - Methods used to separate out transactions into different accounting periods ## D Debit - Any record keeping that increases assets or expenses or decreases capital or liability, the opposite of a Credit Debtors - Customers who owe money Default - When a financial obligation cannot be met Deferred Expenditure - Expenses that can't be applied to the present accounting period and are treated as an expense later Deferred Income - Income received or recorded before it is earned Deficit - When expenses or liabilities are more than income or assets Depreciation - The decrease in value of a fixed asset over fixed periods, contrasts with amortization Derivative - aka Underlying, a contract that derives its value from the performance of an underlying entity Disclosure - Being transparent about accounting information so that financial statements can be understood Discounted Cash Flow - A method for investors to see if an investment is worth their time by adjusting the cash flows based on time Dividend - The profit that ultimately gets to a shareholder Dollar Cost Averaging - Using the same ratio of investment categories at regular intervals to build a portfolio, a great habit-building way to invest Double-Entry Bookkeeping - A universal accounting system where everything is recorded as both a debit and credit Drawing - Money that a company owner takes out of a company for their own personal use, which is *not* wages ## E Earned Income - Cash or equivalents that someone gets as compensation for goods or services EFT - Electronic Funds Transfer, movement of funds between financial institutions Earnings Per Share - The total profit of a company divided by the number of shares Encumbrance - Money that has to be put aside for any purpose Entry - The information put into a Journal or Ledger Entry Reversal - An error where a credit swapped with a debit Equity - The total incomes and assets minus the total expenses and liabilities of something Error of Commission - An error where the information was correctly entered to the right account, but the value is wrong Error of Omission - An error where a transaction wasn't entered at all Error of Principle - An accounting entry that doesn't conform to GAAP Escrow - Assets a third-party holds on to until specified conditions have been met Exclusions - aka Excluded Income, things excluded from a taxpayer's gross income such as gifts and inheritances Exemption - The amount of income that isn't taxed, but sometimes refers to a specific amount for a specific thing Expenditure - aka Expense, anything a business purchases (e.g., inventory, salaries) ## F Face Value - aka Par Value, the indicated price for a bond or stock to be sold, can be sold at a premium or discount Fair Market Value (FMV) - The price a reasonable person would pay someone who wants to sell for something, assuming both people know everything relevant to the product or service Federal Trade Commission (FTC) - A governing board alongside the Securities and Exchange Commission that oversees trade in the USA Fill - An executed trade for a security or commodity Financial Accounting Standards Board (FASB) - A group that spends all day making standards on accounting practices, sometimes against the IASB First In, First Out (FIFO) - an inventory method that values inventory sold by the cost of the earliest inventory purchased Financial Contagion - The tendency for people to rapidly proliferate investing trends by observing each other Financial Statements - Documents that show financial information, the most popular ones being the Balance Sheet, Income Statement and Cash Flow Statement Financing Activities - one of the three Cash Flow Statement categories of financial activity with Operating Activities and Investing Activities that refers to managing debts and managing the company's stock Finished Goods - The processed inventory made from Raw Materials Fiscal Year - A 12-month period that can begin on any date that a business chooses as their accounting year Fixed Assets - aka Non-Current Assets, things a business owns that will be around for more than a year and include land, buildings, machinery, vehicles, and other long-term investments that will affect day-to-day operations if it's turned into cash Fixed Cost - A cost that remains about the same from period to period, like salaries and rental agreements Forecast - An estimate of the future finances of a company with concrete numbers based on how the company has done in the past Fraud - Intentionally misusing a company's resources Flow of Funds - A report that shows how the balance sheets have changed from one accounting period to the next Future Value - The value of something in the future after accounting for inflation and the inability to spend it during that time, as opposed to Present Value ## G Generally Accepted Accounting Principles (GAAP) - a century-old standard for how accountants should think and work Gain - aka Profit, when revenue is more than expenses, the opposite of a loss General Ledger - aka Book of Entry or Chart of Accounts, a large collection of all of a company's accounting information that all the financial statements pull from Golden Parachute - Provisions for executives in the event of a corporate merger or takeover, leaving the executive unemployed and much wealthier Goodwill - The difference between the Book Value and Fair Market Value of an asset, which includes overpaying to buy a company for its reputation and rewarding customers for their loyalty Gross - aka Gross Income, total profits before making any deductions or discounts Gross Margin - The difference between the cost of making or getting something and the cost of selling it Growth and Acquisition - How a business grows, either by getting bigger and expanding operations or by buying other companies Growth Fund - A mutual fund oriented toward higher-risk medium/large company stocks ## H Hedge Fund - A mutual fund managed unconventionally Historical Cost - The original price of something ## I International Accounting Standards Board (IASB) - a group that spends all day making standards on accounting practices, sometimes against the FASB Impairment - The decreased value of an asset that can no longer be depreciated Impersonal Accounts - Accounts not held in the name of a person for any other entity outside a company Imprest System - A method of restoring an account, usually petty cash, to its original value when it starts running out In-the-Money - A situation where the strike price of an option has actual value on a market, contrasts with out-of-the-money Income - aka Turnover or Yield, revenue minus expenses Income Statement - aka Profit and Loss Account (P&L), a financial statement that is a summary of revenue, expenses, and profit Incorporation - The date a business is legally established Initial Public Offering (IPO) - The first official sale of a corporation's stock to the public Intangible Assets - Assets that have value but cannot be physically touched, such as patents, copyrights, trademarks, and licenses Interest - A payment to a lender for a loan, usually a percentage of the remaining principal Inventory - Goods that are manufactured for sale or purchased for re-sale Inventory Obsolescence - Inventory that can no longer be sold like out-of-style clothing or rotten food Inventory Shrinkage - A reduction of inventory for non-selling reasons such as theft Inventory Turnover Rate - aka Stock Holding Period, the number of days inventory stays in storage before being sold Investing Activities - One of the three Cash Flow Statement categories of financial activity with Operating Activities and Financing Activities that refers to buying things that can keep the company going long term or help the company expand Investment - Buying goods or services that are likely to increase profit Investment Portfolio - An investor's list of owned assets Investors - People or businesses who have invested money into a business to become part-owner Insider Trading - Making a stock trade based on specialized information other people have told you ## J Journal - A system that records chronological business transactions that are posted to the General Ledger Joint Venture - Capital that is combined to provide products or services, usually as business partnerships where everyone involved is fully responsible for the business ## K Key Performance Indicators (KPI) - A numerical measurement that calculates the performance of a business ## L Last In, First Out (LIFO) - an inventory method that values inventory sold by the cost of the last inventory purchased Leasing - A rental agreement which lets someone use an asset for a set amount of time Ledger - The financial record that keeps track of business transactions posted from Journal Entries Leveraging - aka Gearing, borrowing against an asset to do something productive Liabilities - Things one entity owes for money, goods, or services Liquidity - Available assets that can be quickly converted to cash Listed Company - A company that can be bought and sold on the stock market Listing Requirements - Stock market rules to companies that want to buy and sell on the stock market Long-Term - Generally, "long-term" in accounting means anything that extends beyond the next 12-month cycle Long-Term Asset - An asset that expected to be around for over a year (e.g., factory machine, [auto](autos.md)) Long-Term Liabilities - Things owed that aren't due for more than one year (e.g., mortgages, bonds) Loss - Where expenses are more than revenue, the opposite of a Gain or Profit depending on the context ## M Majority Stakeholder - The person or entity that owns most of a company's shares Management Accounting - The profession of creating specially made reports to fit the needs of the people who run a company Margin Account - A stockbroker's account that allows them to quickly borrow and pay off loans, with the fees for keeping it open as a "margin" of their returns Market Maker - An organization or individual who makes a profit with a bid-ask price Matching - Combining sales and expenses together in an accounting period Maturity - The date a liability is first due Merger - When two organizations share their assets and liabilities and combine into one organization without becoming a new third entity in the process Mirror Trade - A trade that involves buying securities in one currency and then selling identical ones in another currency Money Laundering - The process of hiding illegally obtained money so it seems legal, usually by transactions alongside or inside legal money Moving Average - A method of showing data on graphs to display trends that averages out the numbers to make smooth lines instead of jagged points Mutual Fund - aka Fund, a combination of assets that a fund manager directs toward investing ## N National Best Bid and Offer (NBBO) - The tightest bid-ask spread in a security Net Worth - aka Net Worth, Net Profit or simply Net, the "true" worth of something after adding together all incomes and assets and then subtracting all expenses and liabilities Net Assets - All of something's assets minus all of their liabilities Net Operating Loss (NOL) - A tax situation where an entity's expenses exceed an entity's revenues. Net-Net Investing - An investing strategy that focuses on sending funds toward equities valued at less than all of a company's current assets. No-Show Job - A form of tax fraud where an employee is hired financially, but they don't actually do any work. Nominal Value - A share's first value during an IPO Not-For-Profit Organization (NPO) - A company that uses all its income for a specific purpose outside of organization, and where trustees and shareholders do not receive financial benefits Not Sufficient Funds (NSF) Fee - A fee for a customer not having enough funds to cover a cost, called an overdraft fee if a bank uses it ## O Opening the Books - After a business has Closed the Books, they start the record keeping for the next period Operating Activities - one of the three Cash Flow Statement categories of financial activity with Financing Activities and Investing Activities that refers to the day-to-day operations of the company Operating Cycle - The amount of time between things being bought and things being delivered or fulfilled Operating Risk - When the cost of fixed operating expenses is high and could cause a fluctuation in profits Option - The rights to buy (Call) or sell (Put) a stock or asset for a certain period of time Originator - Account holder who begins a wire transfer Out-of-the-Money - A situation where the strike price of an option doesn't have actual value on a market, contrasts with in-the-money Overhead - The costs of running a business that are not tied directly to production or sales ## P Parent Company - A company that controls at least one subsidiary Partnership - An agreement between at least two people where they agree to conduct profitable business together and be liable for the debts of a company Pay on Delivery - Where goods and services are only paid after they have been received Payment for Order Flow (PFOF) - A payment that a stockbroker pays a market maker to route payments PE Ratio - Profit-Equity Ratio, an equation used to see how confident the shareholders are about profits Perpetual Inventory - A system where the inventory balance is updated after every transaction Petty Cash - A small account companies use for tiny purchases, with bank cards this idea has become largely obsolete Plug - A small number used to correct rounding errors that can show up on financial statements Point of Sale - The place where a transaction is conducted Ponzi Scheme - A fraudulent system framed as an investment vehicle that involves borrowing ever-increasing money from investors to pay off other investors Pyramid Scheme - A fraudulent system framed as a business arrangement that involves directing funds upward along a hierarchy Position - A holding in an investment Preferred Stock - A type of share that allows the shareholder to have preference to receive a dividend before common shares' dividends are declared Premium - The amount paid over face value Pre-Payment - An amount paid in advance such as insurance or rent, usually for the coming year Present Value - The current value of an amount of something, used to analyze investment opportunities, as opposed to Future Value Price-Sensitive Information - Knowledge that would change a company's stock price if the public knew about it Principal - The original or remaining amount of a loan Profit - aka Margin, the revenue of a business minus expenses Profit Center - A portion of a business that is focused on generating profits for a company Profit Margin - aka Markup, the percentage difference between the cost of a product or service and the price it's sold for Projection - Hypothetical assumptions that estimate future financial statements Prospectus - A document used to advertise shares an investor can buy, which usually contains financial statements and detailed supporting information Provisions - Amounts put aside in accounts to cover future Liabilities Proxy Statement - A document required by the Securities and Exchange Commission that helps shareholders make informed decisions about matters that will be addressed at a stockholder meeting [Continued](glossary-financial-2.md)