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.

See Stock and Authorized stock.

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.

An accounting method that counts cash inflows or outflows when they are actually expended or received (as opposed to accrual basis).

A budget used to quantify an immediate short-term cash flow.

The aggregate of all cash inflows and outflows. This can be expressed as positive or negative cash flow.

The process of channeling cash into expenditures that enhance productivity.

The amount the policy-owner receives when voluntarily terminating a cash value life insurance or annuity contract before its maturity or before the insured event occurs.

Sudden and unexpected losses due to damage, destruction, fire or theft, for which one can be compensated by insurance contracts.

A document issued by the proper state authority to a foreign corporation granting the corporation the right to do business in that state.

An agreement with a commercial bank in which funds are deposited at a fixed interest rate for a specified period of time. CDs are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. There may be a penalty if funds are withdrawn before the CD reaches maturity.

A professional accountant who has received certification to practice accounting from a state board of examination and may also be a member of the American Institute of Certified Public Accountants or other various state CPA organizations.

A debtor (business, individual, or partnership) is declared bankrupt but is allowed reorganization to attempt debt repayment. Creditor approval is required. A separate taxable entity is created.

A debtor (individual or sole proprietor) is declared bankrupt but is allowed to retain estate related assets and restructure debt obligations for eventual payment. No creditor approval is required.

A debtor (individual) is declared bankrupt, and a court-appointed trustee initiates a liquidation process and a discharge of all eligible debts. The debtor has no financial sources to attempt a reorganization. A separate taxable entity is created.

A written, signed, and dated instrument that allows for the transfer of money from a bank account to a payee.

A form of cash payments journal which is used to record deposits and expenditures in and out of a bank account.

A request for payment from an insurance policy.

An assessment of an insurance company’s ability to pay claims.

A close corporation is a corporation that possesses the following traits: a small number of shareholders, no ready market for the corporation’s stock and substantial participation by the majority shareholders in the management of the corporation. Some states have close corporation statutes.

The end of a trading session or the process of transferring real estate from a seller to a buyer.

Costs involved in transferring real estate from a seller to a buyer, over and above the price of the property. These can include charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Closing costs do not include points or the cost of private mortgage insurance (PMI).

A claim, lien, or right on real estate that requires a quitclaim deed to resolve the potential hindrance before the title can be transferred.

A side-by-side accounting of balance and net worth statements for several affiliated business enterprises.

A loan intended for short-term financing of a business, based on the creditworthiness of the business or owner and the prime lending rate.

An unsecured, short-term debt instrument used by corporations with high-quality debt ratings to fund short-term liabilities. Generally considered a safe investment.

The fee charged by an agent or broker for facilitating a transaction.

A written agreement specifying the terms and conditions of a mortgage.

A security that represents partial ownership or equity in a corporation. Holders of common stock are entitled to participate in the company’s stockholder meetings and vote for the board of directors.

Interest calculated on both the principal amount invested and the previously accumulated unpaid interest.

A process in which income and gains on an investment are reinvested to grow further. When you earn compound interest, you earn interest on both the principal amount and the accumulated interest as it is earned.

A person who receives goods that belong to someone else for future sale or other purpose. Although consignees are not the owners of the goods, they are accountable for them.

Goods that are in the hands of someone other than the owner for future sale or other purpose.

The owner of goods that are in another person’s hands for future sale or other purpose.

Financial statements that show the results of all operations under the parent company’s control, including those of any subsidiaries.

A short-term obligation used to fund a construction project. In most cases, the issuers, such as a city government, will repay the note obligation by issuing a long-term bond.

A secondary beneficiary who receives insurance benefits if the primary beneficiary revokes his or her status, is ineligible, or is deceased.

An obligation to pay if certain future events occur. This can also refer to a defined obligation for which the chances of payment are minimal.

Direct or indirect ownership of voting shares sufficient to elect the majority of the board of directors of a corporation.

An insurance policy that allows the policyholder to convert the face amount of coverage in term insurance to an identical amount of whole life insurance.

A debt security issued by a corporation that obligates the issuer to pay interest periodically and repay the principal at maturity. Corporate bonds often have higher interest rates than government bonds due to possible default risk.

Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book that contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.

A group of people acting jointly for business and tax purposes who are able to incur debt and realize profit without immediate legal or taxable liabilities. A corporate entity allows its owners to attract outside capital by selling shares of ownership, protects the owners from liability beyond their investment outlay, provides for continuity of operations beyond the lives of the current owners and allows changes in ownership through the transfer of shares.

A reverse movement in the price of a stock, bond, commodity, or index that brings it more in line with its underlying fundamental value.

An individual who signs a loan or credit card agreement along with the principal applicant and assumes responsibility for the outstanding balance if the applicant defaults.

A clause in a contract that obligates one party to refrain from performing professional or business activities similar to those of the other party.

A federal program that allows parents to accumulate tax-free savings for a child’s college education, formerly called the Education IRA.

Legal obligation to make repayment at a later date for goods, services or money obtained through the extension of credit, or a promise to pay in the future. The cost of credit is usually referred to as a finance charge, interest or time-price differential.

Entry recording an increase to a liability or owner’s equity or revenue, or a reduction to an asset or expense. Credits are recorded in the right hand column of an account or a two-column book. Opposite of debit.

Clearinghouse of consumer credit information used by businesses to determine the credit.

A record of how a party has paid past debts.

A revolving agreement that allows a person to borrow any amount up to a preapproved limit for purchases or cash advances. When the outstanding balance is paid off, credit again becomes available to fund new purchases or cash advances.

Issued by a seller to a purchaser to record the reduction of a bill because of an allowance, return or cancellation. Opposite of an invoice.

A formal assessment of an individual’s or a corporation’s ability to handle credit, based on the history of borrowing and repayment, as well as the availability of assets and the extent of liabilities.

If you have a store credit, you can use the credit to purchase merchandise free of charge. If you have a tax credit, your taxes are reduced by the amount of your credit. You can get tax credits for purposes such as child care expenses and the earned income credit for low-income taxpayers.

Cumulative voting allows shareholders to aggregate their votes in favor of fewer candidates than there are slots available. This method of voting is intended to create adequate representation for minority shareholders.

Unrestricted cash, or any other asset that is expected to be converted into cash or consumed in the production of income within a year.

Liability expected to be liquidated in a year.

An entry recording an increase to an asset or expense or a reduction to a liability, revenue or owner’s equity. Debits are recorded in the left-hand column of an account or a two-column book. Opposite of credit.

A card issued by a bank that can be used to withdraw cash from an automated teller machine or to make purchases at merchant locations. Debit cards deduct funds from the checking or savings account linked to the card when they are used.

A legal obligation to deliver a product, service or amount of money.

The ratio that indicates a company’s ability to repay outstanding creditors. This also indicates the degree of leveraged money to improve the rate of return for shareholders.

A term insurance policy with a death benefit that decreases over time. This type of insurance is often used in conjunction with a mortgage or other amortized debt to guarantee payment if the holder dies before it is paid off.

A document that identifies legal ownership of real estate.

An annuity that pays an income or lump sum at a future date.

A negative amount of retained earnings caused by cumulative losses and dividend distributions exceeding cumulative net income.

An employer funded and controlled retirement plan that pays a predetermined benefit based on an employee’s years of service and salary or wages.

A retirement plan to which an employer contributes a fixed amount or percentage of the employee’s salary each year. The employee may be allowed to make individual contributions or choose the investment mix for his or her account.

The opposite of inflation. A reduction in the price of goods and services. Possible causes of deflation are a decrease in the supply of money or credit or reduced individual or government spending.

A loan repayable upon the demand of a creditor.

A person who relies on another for financial support. Taxpayers who support dependents can claim tax exemptions for them.

Gradual using up or consumption of a natural resource.

Funds used as collateral for the delivery of a good, such as a security deposit. It can also refer to the transfer of funds to another party for safekeeping, such as a deposit into a bank account.

The decrease in value of a fixed asset during its projected life expectancy, or the decrease in value of one currency in relation to another.

A financial instrument whose characteristics and value depend on the value of an underlying instrument or asset, such as a commodity, bond, equity or currency. Futures and options are types of derivatives.

Costs identified with a specific unit of product. For example, clay in the production of flowerpots or tubing in the production of bicycles are direct costs.

The transfer of funds refund directly to a bank account.

The tax-free transfer of money or property from one retirement plan or account to another.

A direct tax cannot be shifted to others, unlike an indirect tax. For example, federal income tax is a direct tax. You are required by law to pay.

Directors are elected by the shareholders. They manage or direct the affairs of the corporation. Typically, the directors make only major business decisions and monitor the activities of the officers.

A policy that provides an income if total disability prevents the insured from working.

A broker who buys and sells securities at lower rates than a full-service broker, and who may offer fewer services.

An individual’s income after taxes.

The termination of a corporation’s legal existence. Dissolution may be caused in a variety of ways including: failure to file annual reports, failure to pay certain taxes, bankruptcy or voluntary dissolution of the corporation by the shareholders and directors.

An investment strategy that spreads investment risk over a number of industries, market sectors or companies. Gains in one area can offset losses in another.

A distribution of earnings to a shareholder or mutual life insurance policy owner. This distribution is usually in the form of money or stock.

A strategy that invests a fixed dollar amount in securities at set intervals, regardless of market prices. With this approach, an investor buys more shares when prices are low and fewer shares when prices are high, usually resulting in a lower average cost per share.

A corporation is domestic in the state where it was incorporated.

The result of tax laws that cause the same earnings to be taxed twice. For example, C corporations are taxed at the corporate level, and their shareholders also pay taxes on the dividends they receive.

The price-weighted average of 30 actively traded blue-chip stocks on the New York Stock Exchange (NYSE). The DJIA represents 15-20% of the market value of NYSE stocks.

The removal of funds from a fixed-rate investment before the maturity date or from a tax-deferred investment account before a predetermined time.

The sum of income pertaining to wages, salaries, tips, self-employed net earnings and any other income received for personal services.

A refundable tax credit low-income workers can file for, even if no income tax was withheld from the worker’s pay.

Computerized network services that allow bank account holders to securely access their accounts on the internet.

The use of the internet to conduct business and buy or sell goods and services.

IRS e-file options allow you to file federal income tax returns, and some state returns, through a tax professional, through your home computer or even through your telephone. It may also be available in many other places in your local community.

A process by which funds are electronically transferred between accounts. EFTS allows for direct deposits or withdrawals without processing written checks.

A 1974 law establishing government oversight and federal limitations for pension and retirement plans.

An employer-sponsored program that encourages employees to purchase shares in the company they work for and possibly participate in management.

Assets, funds or property donated to an individual, organization or group to be used as a source of income.

Written communication between an accountant and a client with respect to a professional engagement, outlining the scope of the accountant’s responsibilities and arrangements agreed upon.

A federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.

Anything that represents ownership interests, such as stock in a company. Equity can also refer to the difference between an asset’s current market value and the debt against it.

A loan that allows a homeowner to borrow against the accumulated equity in his or her home.

A third-party agent, or account, that assumes possession of a contract, a deed or money from a grantor until all outstanding obligations or commitments are complete. Upon completion of these obligations, the property held in escrow is delivered to the grantee.

Real and personal property owned by a person at the time of death. Real property is land and anything permanently attached to it.

The process of determining the disposition of a person’s assets after death.

Federal or state taxes levied on the assets of a person who dies, paid by the decedent’s estate rather than by the heirs.

The amount above the specified amount upon which calculations for future benefits are based in a pension plan integrated with federal old-age, survivors’ and disability insurance (OASDI).

Excise taxes are taxes on the sale or use of certain products or transactions.

The person who is named in a will to administer the distribution of the deceased’s assets.

Before a taxpayer pays taxes, he or she can claim a set amount of tax deductions for him or herself, a spouse and eligible dependents. The total amount is subtracted from the adjusted gross income before the tax on the remaining income is figured out.

A taxpayer can be exempt from paying a certain amount of federal income tax if they meet certain income, tax liability and dependency requirements.

Consumption of an asset or payment for an expense.

An independent accountant engaged to determine if the financial statements of an entity represent the economic events that occurred during the period audited. The external audit is for the shareholders and owners, rather than for management.

Shipping term meaning “free on board” to inform the purchasers of the location at which they become responsible for the shipping charges. For example, F.O.B. Toronto means the vendor pays the charges to Toronto’s freight yard and the purchaser is responsible from there.

The Federal Insurance Contributions Act (FICA) consists of both a Social Security payroll tax and a Medicare tax. The tax is levied on employers, employees and certain self-employed individuals.

A simplified form to be used in place of the 1040 form for some individuals.

By January 31 of each year, your employer, even if you do not work there anymore, will provide you with a statement of how much you earned in wages, tips and other compensation from the previous year. This form will reflect state and federal taxes, social security, Medicare wages and tips withheld. It also includes a lot of other really important information you will need to file your return.

Form W-4 is used to determine how much of an employee’s paycheck is withheld for federal income taxes.

The highest price available in an open and unrestricted market between informed, prudent parties, acting at arm’s length and under no compulsion to transact. Fair market value is expressed in terms of money, or money’s worth.

A partnership of family members that helps arrange for generational transfers of wealth or a business, maintain control within the general partners and reduce potential liability to the transferor and transferee.

The board of governors that oversee the Federal Reserve Banks, establishes monetary policy, such as interest rates or credit, and monitors the economic health of the country. Its members are appointed by the President, subject to Senate confirmation and serve 14-year terms.

A number given to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts.

An individual who provides investment advice for a fee, who exercises discretionary authority in managing assets or who is responsible for holding assets in trust and investing them for the benefit of another party.

To file a return is to send in your completed tax forms. All your tax information appears on the return, including income and tax liability.

Your filing status determines your tax bracket and amount of taxes you must pay. Factors such as marital status affect your filing status.

Financial support that a student receives to attend school, including loans, grants, scholarships and work-study programs.

Formal financial reports prepared from accounting records. For example, Profit & Loss Statement, Balance Sheet or Statement of Retained Earnings are all types of financial statements.

A life insurance policy covering two or more people that pays a death benefit when the first person dies.

A period of one year for which financial statements are prepared that may, or may not, coincide with the calendar year. Any twelve-month period used by a business as its accounting period.

An investment contract sold by a life insurance company that guarantees regular payments to the purchaser for life or a specified period of time, in exchange for a premium paid either in a lump sum or in installments.

See Capital Assets.

A mortgage with an interest rate which does not increase or decrease during the term of the loan.

A mortgage with a set interest rate that remains the same over the life of the loan.

The constant renewal of government Treasury bills, or short-term corporate bonds, to pay off current liabilities, or finance cash flow.

Insurance against flood damage, usually required by mortgage lenders if a property is located in a flood zone.

When a homeowner sells his or her home directly to another party, without the assistance of an agent, or broker.

The legal procedure by which a mortgage holder can seize the property of a borrower who has not made required payments.

A corporation is referred to as a foreign corporation in all states except for the state where it is incorporated. If a corporation conducts business in a state other than where it was incorporated, it must register for a certificate of authority to transact business in the other state or possibly lose access to that state’s courts and face fines.

Non-vested employer contributions from the accounts of employees who leave an employer’s pension plan. These may be applied as credits to remaining employee accounts or used to offset future employer contributions.

There are strict steps, that involve the President and Congress, that a proposed tax must pass through before it becomes a law.

A license that allows a designee to sell and market a company’s products or services in a fixed geographic area.

A tax imposed by the state for the privilege of carrying on business as a corporation or LLC. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock or by amount of business done.

Opportunities and services offered beyond wages, or salary, in compensation for employment. Common fringe benefits include paid holidays, sick days, paid vacation days, insurance coverage or retirement plans.

A sales fee, or load, that is paid up front by investors when they purchase an investment and deducted from the investment amount. A front-end load generally lowers the size of the investment.

Agreements to buy or sell a specific amount of a commodity or financial instrument at a set price on a specific future date.

Abbreviation for generally accepted accounting principles. GAAP, by definition, have been given formal recognition, or authoritative support.

Abbreviation for generally accepted auditing standards. GAAS, by definition, have been given formal recognition, or authoritative support.

Journal in which transactions are recorded for which specific journals are not provided. For example: adjustments and corrections. In a small operation the general journal may be the only book of original entry.

All the financial accounts and statements of a business, including debits, credits and balances.

An authorized agent of a partnership and of all other partners for all purposes within the scope and objectives of a business.

A voluntary transfer of assets, or property, with no compensation.

A tax levied on assets transferred from one person to another. This tax is paid by the donor.

The offering of financial incentives or benefits to persuade an older employee to retire early.

Benefits given to a valued employee to persuade him or her to remain with the company.

A benefits package given to top executives who are laid off due to a corporate buyout, or takeover.

The difference between going-concern value and tangible asset value. Tangible assets include identifiable intangible assets with values that can be separately determined.

A debt security issued by the U.S. government: two common types are savings bonds and marketable securities.

A period of time after the due date of a payment during which the overdue payment may be made without penalty, or lapse, in contractual obligations.

The total dollar value of a person’s assets at the time of death, before taxes and other debts.

Gross income is the total of all receipts and gains minus the inventory cost of the business in a given time period. For example, people who use the barter system are required to include whatever they’ve bartered for as part of their gross income.

Total monthly income from all sources before taxes and other expenses.

A life insurance policy that insures a group of people. This type of policy is often provided as an employee benefit.

An individual who has legal responsibility for a minor child, or a legally incapacitated adult.

An account that offers individuals covered by high-deductible health plans (HDHPs) tax-favored opportunities to save for medical expenses.

For benefit plan purposes, an employee who receives compensation in the top 20% of all employees, is a 5% owner of the business, and exceeds certain annual compensation levels.

A corporation that has no other function except owning other corporations.

The difference between a home’s current market value and the sum of all claims against it.

A loan in which the lender allows the borrower to use the equity in his or her home as collateral for a line of credit, or revolving credit. The borrower may then obtain cash advances by using a credit card, or checks, up to some predetermined limit.

Horizontal equity says that people in the same income groups should be taxed at the same rate.

The combined income of all household members from all sources. These sources include wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest and dividends.

The ratio of a person’s monthly housing payment to his or her total monthly income.

The amount of money a person receives from all sources. These sources include wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest and dividends.

A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The income statement is also known as a profit & loss statement, statement of earnings, statement of income or statement of operations.

These are taxes on income, both earned income, such as salaries, wages, tips or commissions, and unearned income, such as interest from savings accounts or dividends if you hold stock. Individuals and businesses are subject to income taxes.

See Corporation.

The person or entity that prepares and files the articles of incorporation. Total Tax Solutions acts as an incorporator for many new companies.

To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred during the incorporation process.

A hypothetical portfolio of securities that represents a particular market or portion of it. An index is used to measure the amount of change in a particular security by comparing it to similar companies.

A tax collected by an intermediary who shifts the economic burden to another. For example, a company might have to pay a specific tax to the government. The company pays the tax but can increase the cost of their products so consumers are actually paying the tax indirectly by paying more for the company’s products.

A tax-deferred product offered by banks, mutual funds and other companies. Under current law, a married couple can put $11,000, $5,500 each ($6,500 each if you are age 50 or older), into their own IRA each year in a wide range of savings accounts and investments. Earnings are tax-deferred until you begin withdrawing the money, which you can start doing without penalty after age 59 ½. Under current tax law, some people, depending on income, marital status or other factors, can deduct all or part of their IRA contributions, which reduces their taxes.

The general rise in the prices of goods and services that occurs when demand increases relative to supply.

Meetings where individuals and interest groups get together to discuss tax issues.

A company’s first public offering of stock.

When liabilities exceed assets. Also, the inability to pay debts when due. See Bankruptcy.

A part of a sum of money, or debt, to be paid at regular intervals, usually made up of principal and interest combined.

Not having enough money in a bank account to cover a specific debt.

An insurance applicant’s likelihood of being accepted by an insurer, based on health, occupation, lifestyle and finances.

A vested financial interest in the life of another person.

An individual who is covered by an insurance policy.

An asset without physical substance that has value due to rights resulting from its ownership and possession. For example, goodwill, patents or trademarks are all intangible assets.

An employee pension plan included with Social Security benefits or with Old-Age, Survivorship and Disability Insurance (OASDI) contributions.

The financial value that human innovations and intelligence bring to a business enterprise.

“Interests” represent a member’s ownership of an LLC just as a partner has an interest in a partnership and shareholders own stock in a corporation.

The cost of using money over time usually expressed as an annual percentage.

Fully-taxable income earned in the form of interest which accumulates from cash temporarily held in savings accounts, certificates of deposits, or other investments.

The cost of borrowed money expressed as a percentage for a given period of time, usually one year.

An employee of an entity, such as a corporation, who audits for management, providing valuable information for decision-making concerning the effective operation of its business.

A coordinated system of procedures and techniques designed to safeguard a company’s assets, to ensure the accuracy of its accounting records and to promote efficiency and adherence to prescribed policies.

The theorem of compounding interest in reverse, or discounting. IRR is important in planning capital outlays and evaluating rental real estate investments.

Items of tangible property held for sale. An inventory is a detailed list of items and their values owned at a specific point in time. Stock inventory would include raw materials for manufacture, materials partly processed and finished products including items in transit for which title is held, but would not include items physically held for which title belongs to others. Inventories may also be made of fixed assets, stationery and supplies, etc.

Funds committed to acquire something tangible or intangible in order to receive a return, either in revenue or use.

The financial goal of an investment.

Document for goods purchased or services rendered showing details such as quantities, prices, dates, shipping details, order numbers, terms of sale, etc.

A trust that cannot be altered or canceled without the permission of the beneficiary or trustee. The grantor gives up all ownership rights to the assets and the trust in such cases.

Two or more goods having approximately the same economic value that are manufactured simultaneously from the same raw material.

A form of property ownership in which two or more people own an undivided interest in the property. When one joint owner dies, ownership automatically passes to the surviving joint owner(s).

A book of original entry in which financial transactions are recorded. For example, a purchase journal is a record of purchase transactions.

A transaction log of unique or recurring items. For example, debits and credits would be logged into a journal as journal entries.

Similar to a 401(k), but for the self-employed.

A tax-deferred defined benefit or contribution plan that a self-employed individual can set up.

An employee whose skills, knowledge or abilities are crucial to the ongoing operation of the company. This term is used in applying top-heavy tests for qualified referral plans under the Internal Revenue Code Section 416.

An insurance policy that reimburses a company for the loss of a key employee.

An insurance policy that is canceled for nonpayment of premiums, or canceled before it has cash or surrender value.

A legal contract conveying the use of property from the owner (lessor) to another (lessee) at a fixed rate, for a stated length of time.

An agreement where a portion of each lease payment applies to a future purchase of the leased property. Also, applies where the leaseholder has the right to buy the property during or at the conclusion of the lease term.

An arrangement in which the seller of an asset leases that same asset back from the purchaser. For example, a business owner may sell the business’s office building to raise cash, then arrange to lease the building from the new owner so the business can remain at its present location.

Additions, improvements or alterations made to leased property by the lessee.

A book of final entry containing all the accounts of a business or all the accounts of a particular type. Some examples are general ledgers and accounts receivable ledgers.

A person or organization that parts with something of value for a stated, or open, duration of time in exchange for specific compensation.

A document by which a bank substitutes its creditworthiness for that of a recipient customer and buyer in a sales transaction.

A life insurance policy for which premiums remain the same from year to year for a specified period.

Something for which one is held liable, such as an obligation or debt. Financial liabilities can include loans, mortgages, accounts payable, deferred revenues and accrued expenses, among others.

An annuity that provides income for life.

The time period from the beginning to the end of the life of an individual, product or business. Corporate business entities frequently have life cycles that extend beyond those of their founders or current owners.

The average number of years that an individual of a given age is expected to live.

A contract in which the insured pays a premium to an insurance company in exchange for a defined payment to a beneficiary, usually a family member, upon his or her death. Available types of life insurance include term life, whole life and universal life.

A federal tax credit for qualified higher education expenses incurred to learn or improve job skills.

See Corporation

A business entity formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs are a new entity in the United States, although the concept has long been used internationally. LLCs provide limited liability to their members, and are taxed like a partnership, preventing double taxation. LLCs can be formed in every state.

A form of business ownership that provides each shareholder with limited liability to the extent of invested capital.

An investment affiliation consisting of a general partner and limited partners. The general partner, in return for fees and a percentage of ownership, manages business operations and is ultimately liable for any debt. Limited partners may receive income, capital gains, and tax benefits in return for their investment, but have little involvement in management.

An asset, such as cash, that can be readily converted into other types of assets or used to buy goods and services or satisfy obligations.

Cash and short-term investment vehicles. Liquid assets can be things like commercial paper, checking accounts, account receivables and Treasury bills.