Financial Glossary

401(K)
401(k) are “defined contribution plans” with annual contributions limited, currently, to $17,500. Contributions are “tax-deferred”—deducted from paychecks before taxes and then taxed when a withdrawal is made from the 401(k) account. Depending on the employer’s program a portion of the employee’s contribution may be matched by the employer.
Account balance
Credits minus debits at the end of a reporting period.
Adjustable-rate mortgage (ARM)
A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment rate caps.
Amortization
The repayment of a loan by installments.
Annual percentage rate (APR)
The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an APR of 20%.
Annual percentage yield (APY)
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).
Annuity
A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
Appreciation
Increase in the value of an asset.
Asset
Assets include all money, investments and property that a person, group or company owns.
Automated teller maching (ATM)
Computer-controlled terminal located on the premises of financial institutions or elsewhere, though which customers may make deposits, withdrawals or other transactions as they would through a bank teller.
Balance Sheet
The summarized version of the financial statement provides information concerning the assets, liabilities and capital at any point in time. The dollar amounts reveal what an entity owes, is owed and the principals’ ownership interest.
Balanced budget
A budget in which the income equals expenditure.
Balanced fund
A mutual fund that invests in a mix of stocks and bonds to minimize risks
Bank
A financial institutions that accumulates deposits and channels money into lending activities
Bank statement
The record of checks paid, deposits made, and all other activity on an account
Bankruptcy
A company with more obligations than assets is said to be insolvent. Bankruptcy is declared through the court proceeding where all debts are forgiven following the surrender of all company assets to pay off the debts.
Billing cycle
The number of days between your last bill and your current bill
Bi-weekly mortgage loan
A mortgage loan on which interest and principal payments are made every half-month (total of 26 payments) as opposed to monthly payments. This results in earlier loan retirement.
Bonds
Debt obligations of corporations or the government
Borrower
The person who borrows money or uses another form of credit
Broker
A person who buys and sells stock on an exchange, on behalf of a buyer or investor
Budget
A detailed schedule of financial activity, such as an advertising budget, a sales budget, or a capital budget.
Capital
Wealth available to produce more wealth; assets of a person or business after liabilities are deducted
Capital gains
Profits from sale of assets, such as stocks, bonds or real estate that are not taxed until the asset is sold
Cash advance
A loan taken out by charging an amount of cash to a credit card
Cash flow (positive)
The excess of income over and above expenses
Cashier’s check
A check written by a bank on its own funds in exchange for payment by an individual
Certificate of deposit
A time certificate representing a sum of money deposited for a set length of time, such as six months
Charge card
A credit card which requires full payment of the bill each month; no interest is charged
Check card
Also called a debit card it works like a check. It is used to access funds from your checking account
Checkbook register
A record of deposits to and withdrawals from a checking account.
Checking account
A banking service wherein money is deposited into an account and checks are written to withdraw money as needed
Co-signer
Someone who signs a loan with the borrower and promises to assume the responsibility of repaying the debt in the event that the borrower does not repay it
Collateral
Savings, bonds, insurance policy, jewelry, property or other item that is pledged to pay off a loan or other debt if payments are not made according to the contract; also called security
Commission
Pay based on a percentage of sales
Compound interest
Interest paid on the original principal plus the accumulated interest
Credit
A credit is a journal entry that increases the assets of the company.
Credit Bureau
A credit bureau is an independent entity that gathers credit-related information concerning the creditworthiness of individuals or businesses. A creditor will request the information concerning a person or company to determine the potential for repayment of a requested loan. The credit bureau sells the requested information but does not set the loan criteria.
Credit card
A card that allows you to buy items on credit and pay off your debt over time
Credit check
A credit check is an evaluation process in which the creditor acquires the credit history of an individual and determines his ability to repay an obligation.
Credit history
A record of your credit performance
Credit limit
The amount of credit you are authorized to use
Credit report
A credit report is created by the credit bureau when a creditor requests the information. The report contains all previous records concerning the handling of credit accounts, loans, late payments and bankruptcies. The borrower must provide permission for an entity to request this information.
Credit score
A three digit number that is calculated based on a number of factors, including: credit history, income and outstanding debts. Lenders will use this score to determine the probability that a debt will be repaid by the borrower.
Credit scoring system
A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness
Credit union
A democratically owned and controlled not-for-profit financial cooperative that offers a variety of savings and lending services to members
Creditor
A creditor is someone who extends loans to others.
Debit card
A plastic card that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers. Use of a debit card results in an immediate transfer of funds
Debt – Debit
A debit is a journal entry that increases assets or decreases liabilities, which is opposite of the credit entry.
Debt balance
amount still owed on a debt
Debt collector
A person or company hired by a creditor to collect the balance due on overdue accounts
Debtor
A debtor owes money to someone who approved a loan or line of credit.
Deductions
Amount subtracted from gross pay
Depreciation
Capital expenditure expressed in terms of the percentage of useful life of an asset that has been used in the accounting period. This entry does not represent cash outlay, and the funds are not earmarked for spending.
Discretionary income
Money that is left over when the bills have been paid
Disposable income
The money you have to spend or save as you wish after taxes, social security, and other required and optional deductions have been withheld from your gross pay
Dividend
Per share payment that is designated by the Board of Directors. For preferred stock, the payment will be a fixed amount each quarter. Common shares do not earn a dividend if the company is not profitable.
Down payment
An amount given as security for a loan to ensure that other remaining payments will be made
Due date
The date payment is due to a creditor
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA, provides an estimated measure for a company’s cash flow. The amount is calculated from the income statement by using the earnings prior to the deductions are subtracted. Companies with large investments in fixed assets, such as construction companies, use this amount to express profitability.
Finance charge
The percentage charge applied to the daily or monthly balances as described in the credit agreement
Financial advisers
Trained professional planners who give overall investment advice
Fixed costs
Company financial obligations that must be paid each period even if the company is not profitable. The fixed costs are deducted from the income prior to computing earnings in equity capital.
Foreclosure
A legal process that will terminate the owner’s right to a certain property following a default on the loan. A forced sale of the property is executed through public auction, and the proceeds are used to repay the debt.
Goodwill
Goodwill is entered on the balance sheet as the amount of money that the purchase price of the company exceeds the net tangible assets. The goodwill is the amount assigned to the competitive advantage offered by the company.
Grace period
The period of time from the billing date of your last credit card bill to the due date of your current bill, when you can pay in full without being charged interest
Gross income
All taxable income received, including wages, tips, salaries, interest, dividends, unemployment compensation, alimony and others
Gross pay
The total salary before any deductions are made
Gross Profit
All sales revenue prior to subtracting the costs incurred to produce the sales.
Hard Inquiry(credit check)
Creditors perform a hard inquiry on a person’s credit history to determine if additional debt can be repaid. The hard inquiry indicates that the borrower intends to incur debt. Too many hard inquiries in a short period of time will lower the credit score.
Hedge Fund
A monetary fund that is allowed to embrace aggressive investment strategies that are off-limits to mutual funds. These strategies can include leverage, program trading, selling short, arbitrage, swaps and derivatives. Hedge funds are limited to fewer than 100 investors. This limitation means that most investors must exceed the high minimum investment amount to participate. The hedge fund manager will collect a management fee and a percentage of the profits realized by the funds, usually 20 percent.
Income
Money that comes in from property, business or work
Income statement
A summary of a company’s revenue and costs for a given year
Inflation
An increase in the general level of prices you pay for goods and services. A popular measure of inflation is the consumer price index
IPO
Initial Public Offering, or IPO, is the first sale of common stock to the public by a company.
IRA
Individual Retirement Accounts provide an avenue for investment through other entities which can include banks, insurance companies or mutual funds. Tax advantages are provided through this type of pension plan.
Interest
Money paid for the use of money; earnings on a savings account
Investment
Outlay of money in the hope of realizing a profit
Joint account
An account held by two people
Late payment fee
A charge added to an account if a required payment is not received by a specific date
Ledger
The ledger is a collection of all final journal entries that represent the transactions against all separate general accounts.
Liabilities
All outstanding claims against an entity, which can include credit accounts, unpaid wages, declared dividends, accrued taxes, mortgage bonds and bank loans.
Liability
A liability can be a credit balance owed, unpaid wages, declared dividends, accrued taxes, mortgages or loans.
Limit Price
Limit price is a pre-set specified price that represents the highest amount, or ceiling, the buyer is willing to pay for the stock purchase.
Line of credit
A pre-established amount that can be borrowed on demand
Loan
Money loaned out at interest
Minimum monthly payment
The smallest payment you can make to maintain a credit account on current status
Money order
An order purchased at a post office or financial institution directing another office to pay a specified sum of money to a person or fund named on it
Mutual Fund
A mutual fund is an open-ended fund that is managed by an investment company. Funds are gathered from shareholders and then invested in a group of assets that align with the fund’s investment objectives. Shareholders receive an equity position, which translates into a share of the underlying securities. Most mutual funds allow the shareholders to sell at any point in time. Share prices fluctuate daily.
Nasdaq
A computerized network that provides current ask and bid prices for all over-the-counter stocks. The NASDAQ does not have a trading floor or employ market specialists to fill orders. All trading is completed over the network.
Net income
A company’s revenue minus its expenses. Net income is also called earnings or profits
Net Present Value
A speculative value of an investment based on the anticipated future net cash flow once the initial investment is subtracted. A positive number reveals a potentially profitable investment.
NYSE
Founded in 1792, the NYSE facilitates the sale of securities. Prices are determined by public demand and existing supply. The Board of Directors consists of 12 public representatives and 12 member firm representatives. A fulltime chairman, executive vice chairman and president provide leadership to the board.
Overdraft checking
A line of credit that allows you to write checks or withdraw funds totaling more than your actual balance
Past due
The status of a bill when the minimum payment has not been received by the due date
P/E Ratio
Price/earnings ratio, or p/e ratio – is the stock price per share divided by the earnings per share across a twelve-month period. For example, a stock with a $48 share price that earned $4 per share has a p/e ratio of 10.
Personal Identification Number (PIN)
A four-digit code that allows you to make deposits and withdrawals with your ATM (Automated Teller Machine) card
Petty Cash
Petty cash is an appropriate amount of cash that is available for incidental expenses incurred by the business.
Portfolio
The portfolio consists of all the securities held by an entity, which can be a person or a company.
Roth IRA
A Roth IRA (Individual Retirement Arrangement) is a special type of retirement plan under US law that is generally not taxed, provided certain conditions are met. The Roth IRA’s principal difference from most other tax advantaged retirement plans is that, rather than granting a tax break for money placed into the plan, the tax break is granted on the money withdrawn from the plan during retirement.
Principal
The total amount that is financed or borrowed an on which interest is compounded
Profit
The amount a business earns when the money received from selling its product or service is greater than its costs
Recession
The economy slows down and manufacturers slow production (there are layoffs); an economic downturn of two or more quarters
Saving
Setting aside income or money for future spending
Savings bond
An interest-bearing certificate purchased at a bank. The face value includes interest and the full amount is paid upon maturity
Service charge
The amount charged borrowers by merchants or banks for servicing or carrying an account or loan
Share account
A savings account at a credit union; the shares are ownership interest in the credit union
Share draft account
A “checking” account offered to members of a credit union. Instead of checks, “drafts” are written against the member’s account
Short-term investing
The continual buying and selling of stock in an effort to have one’s money grow faster than the general level of stock prices
Soft inquiry(credit check)
An inquiry that is not tied to a credit request. The soft inquiry will not impact the credit score negatively.
Stock
Ownership in a corporation; stock can be common or preferred
Taxable income
Adjusted gross income minus deductions
Term Life Insurance
Life insurance policy underwritten for a certain period of years, usually 10, 20 or 30, where the insurance premium and death benefit are fixed until the policy expires.
Transaction fee
An extra charge for various credit activities such as using an ATM or receiving a cash advance
Traveler’s checks
Checks issued by a bank or other institution for a specified amount and signed by the buyer, who may use it as cash by signing it again in the presence of a witness, such as a clerk in a store
Variable costs
Variable costs fluctuate with production output levels. Packaging, raw materials and labor are examples of variable costs.
Wall Street
Wall Street is the name of the financial district in lower Manhattan, New York City where the AMEX, NYSE and large brokerage houses are located. The Street is another common name for the investment community at large.
Working capital
Assets that are necessary for company operations make up the working capital of the company.