Accounting/Investing Dictionary

Account – A standardized record that represents a single categorized financial part of a business

Accounting Period – The time 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 (as opposed to 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 time periods, contrast to 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 very 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

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

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 of the accounts that 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 recordkeeping 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 with 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 than 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

Debit – Any recordkeeping that increases assets or expenses or decreases capital or liability, the opposite of a Credit

Credit Card – A plastic card designed to purchase things without currency

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 time periods, contrast to 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

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 onto 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)

Face Value – aka Par Value, the indicated price for 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

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

Hedge Fund – A mutual fund managed in an unconventional way

Historical Cost – The original price of something

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 of 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, contrast to 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 in the long run 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

Journal – A system that records chronological business transactions that get 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

Key Performance Indicators (KPI) – A numerical measurement that calculates the performance of a business

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)

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

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

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

Opening the Books – After a business has Closed the Books, they start the recordkeeping 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 costs 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, contrast to in-the-money

Overhead – The costs of running a business that are not tied directly to production or sales

Parent Company – A company that controls at least one subsidiaries

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

Qualified Opinion – A report an accountant issues when the information presented is not sound in their professional opinion, as opposed to an Unqualified Opinion

Quality of Earnings – The earnings that can be attributed to higher sales or lower costs instead of accounting anomalies

Raw Materials – Materials bought to be processed into Finished Goods

Refinancing Agreement – A company’s arrangement to replace existing financing with other funding instead of defaulting

Realization Principle – A principle of GAAP where revenue can only be recognized when the goods or services that created that revenue have been delivered

Rebate – A partial refund for overpaying or services that were cancelled before they ended

Receipt – A record of payment, usually written or printed

Replacement Cost – The cost of replacing an asset or liability

Required Minimum Distribution – A individual’s legal requirement to take a specific fraction of their retirement money sometime after age 70.

Reserve Account – An account set up to retain earnings, usually to make balance sheets clearer or to reserve money against future purchases or liabilities

Retained Earnings – Net income that a company keeps rather than distributed to shareholders as Dividends

Return on Investment (ROI) – A very popular profitability ratio most frequently calculated by dividing the gain from the investment by the cost of the investment

Revenue – The money a business receives for its commercial activities

Risk – aka Volatility, the possibility of financial loss, used in investing to determine the most marketable return

Rounding Error – An error that rounds a number upward or downward, a natural product of computer-based math

Sales – The total income from selling goods or services

Secured Loan – A loan where the borrower pledges an asset in exchange for a loan that the lender then uses as collateral

Securities – A broad term referring to any outstanding obligations by companies, typically refers to stocks or bonds

Securities and Exchange Commission (SEC) – A governing board alonside the Federal Trade Commission that oversees trade in the USA

Segment Reporting – Where divisions of a business are separated for individual reporting

Share – aka Stock, an evenly divided part of a company

Share Repurchase – aka Stock Buyback, where a corporation buys back is shares from its stockholders

Shareholder – aka Stockholders, the owner of shares in a company

Short Position – A specific option where an investor purchases sends a short order to a broker, the broker sells the asset with a loan to the investor, and the investor pays it back later and keeps or pays the price difference

Simple Interest – Interest applied to the original principal of a loan

Sinking Fund – Money set aside over time to repay a debt or replace a wasting asset

Speculation – Analysis that makes predictions about an entity’s future performance for the purpose of making investment decisions

Stakeholder – Vague term for any entity who may have any interest in an organization

Statement of Cash Flows – A common financial statement that shows how changes in the Balance Sheet affects the movement of cash, categorized as Operating, Investing and Financing Activities

Stock-For-Stock Merger – A merger where all of a subsidiary company’s shares are directly exchanged for all of a parent company’s shares, effectively conjoining the companies’ equity.

Stock Exchange – aka Stock Market, an organization that sets legal standards for buying and selling publicly traded Shares

Stockbroker – A person or organization who buys and sells securities

Strike Price – The price an option has to arrive at to have any legitimate value

Subordinated Debt – The amount of Unsecured Debt a company owes if the company is liquidated

Subsidiary Company – A company a Parent Company owns

Subtotal – Smaller items grouped together to create a Total

Sunk Costs – Money that cannot be recovered from being spent

Suspense Account – A temporary account where funds are deposited before being sent to the correct place

Tangible Assets – Physical assets, such as buildings, vehicles and machinery

Tax – A mandatory contribution to a government, typically measured by the government through financial transactions

Tax Haven – Jurisdictions that give special tax incentives to foreign investors and depositors

Taxation – The act of taxing people and businesses

Total – the “bottom line”, usually represented by a line above and two lines below

Total Cost of Ownership (TCO) – the complete cost of an asset, which include renewal fees and other mandatory expenses

Trade – An investing transaction, typically trading cash with an asset

Transposition – An error where the digits of a number are swapped

Undeposited Funds Account – aka Cash-in-Hand Account, an account that shows the money that a company has received but not banked or spent

Unlisted Company – A Limited Liability Company not listed on a Stock Exchange

Unqualified Opinion – A report an accountant issues when the information presented is sound in their professional opinion, as opposed to a Qualified Opinion

Unsecured Creditor – A creditor who doesn’t have a claim against a particular Asset, meaning they will only get whatever is left if a company is liquidated

Unsecured Loan – A debt without any collateral attached to it

Valuation – A process that determines the worth of a company’s assets

Variance – The difference between the estimated cost and the actual cost

Vest – A window of time before an investment can be redeemed

Wages – An expense made to employees for their services

Withholding – The amount of money withheld from salaries and paid by the employer to the correct authority

Working Capital – The excess of Current Assets minus Current Liabilities

Work-in-Progress (WIP) – Partially completed goods or services that will be recorded as an asset upon completion

Write-down – A non-cash partial-value expensed reduction of an asset

Write-off – The non-cash total-value expensed reduction of an asset

Yield to Call (YTC) – The chances of a bond being called before its maturity

Zero Based Account (ZBA) – A bank account which is always kept as close to zero as possible

Zero Based Budget (ZBB) – Financial forecasting where every dollar is allocated to a specific purpose to make the starting and ending balances zero