1,000+ Accounting Terms

Accounting

Terms and Definitions

Glossary of Accounting Terms

Popular Terms

Accelerated Depreciation

A method of depreciation that allows for greater depreciation expense in the early years of an asset's life and less in the later years, compared to straight-line depreciation.

Accumulated Depreciation

The total depreciation recorded for an asset or group of assets from the time they were placed in service until the date of the financial statement or tax return. This amount is recorded as a contra account to the related asset account, reducing the asset's book value on the balance sheet.

Alternative Minimum Tax (AMT)

A federal tax designed to ensure that individuals, estates, trusts, and corporations with significant economic income pay a minimum level of income tax, regardless of deductions, exemptions, or other tax breaks they may otherwise be able to claim.

Appreciation

An increase in the value of an asset, such as a stock, bond, commodity, or real estate, over a period of time.

Bankruptcy

A legal process governed by federal statute in which an insolvent debtor's assets are liquidated and managed by a court-appointed trustee to satisfy debts to the greatest extent possible.

Bond

A bond is a type of long-term promissory note, issued as a security under federal or state laws, where the issuer borrows funds from the bondholder and agrees to pay back the principal amount at a specified maturity date, along with periodic interest payments.

Book Value

The net amount that an asset or liability is recorded on the balance sheet, also known as the carrying value. It is calculated by deducting accumulated depreciation, amortization, or impairments from the original cost of the asset.

Boot

In financial and tax contexts, 'boot' refers to any additional cash or property added to a transaction to balance the value of exchanged properties, typically in transactions that are otherwise nontaxable.

Capital Expenditure

An outlay of money to acquire or improve long-term assets such as buildings, machinery, or equipment, which are intended to be used in the operations of a business and are not intended for resale.

Capital Gain

A capital gain is the profit realized from the sale or exchange of a noninventory asset, such as stocks, real estate, or other investments, where the sale price exceeds the asset's original purchase price. These gains are usually treated favorably under tax laws, often at a lower rate than ordinary income.

Carrying Value

The net amount at which an asset or liability is valued on a company's balance sheet, after accounting for depreciation, amortization, and impairment costs, as well as accumulated liabilities. Also known as book value.

Dealer

An entity or individual that buys and sells securities for its own account, acting as a principal in the transaction. Dealers set bid prices for buying securities and ask prices for selling, thus making markets and taking on the associated risks.

Debt Instrument

A financial document representing a loan made by an investor to a borrower, which includes the terms of repayment and, typically, interest payments.

Debt-to-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. It is calculated by dividing total liabilities by shareholders' equity.

Depreciation

A non-cash accounting expense that allocates the cost of acquiring long-term assets over their useful life, representing the asset's wear and tear, obsolescence, or other declines in value over time.

Exchanges

The act of transferring money, property, or services in return for a combination of these items.

FIFO

An accounting method of valuing inventory under which the costs of the first goods acquired are the first costs charged to expense, commonly known as First In, First Out.

Face Value

The nominal value of a security or financial instrument as stated by the issuer, which is the amount due to be paid at maturity. It does not fluctuate with market value.

Fair Market Value

The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.

Fiduciary

A fiduciary is a person or entity who holds a legal or ethical relationship of trust with one or more other parties, typically taking care of money or assets for another person. A fiduciary must act in the best interest of the party whose assets they are managing.

Gain

A financial gain is the profit realized when the revenue received from a transaction exceeds the costs or when a security is sold for more than its purchase cost. The gain represents the difference between the sale price and the original cost.

General Partnership

A business arrangement where two or more individuals, known as general partners, manage the business and are equally liable for its debts and obligations. There are no limited partners in a general partnership.

Goodwill

Goodwill is an intangible asset that represents the premium paid over the fair value of the net identifiable assets (tangible and intangible) and liabilities of an entity during its acquisition.

Hedge

A transaction or series of transactions undertaken to reduce the risk of an investment, often by taking an offsetting position in a related security.

Held-to-Maturity Security

A debt security that a company has the intent and ability to hold until its maturity date, at which point it is expected to be paid in full.

Holding Period

The duration between the acquisition and the sale or disposition of an asset by a taxpayer.

Intangible Asset

An asset that lacks physical substance and is identifiable as a non-monetary asset without physical substance. This includes assets such as patents, trademarks, copyrights, goodwill, and brand recognition.

Interest

The price paid for borrowing money, typically expressed as a percentage rate over a period of time, which compensates the lender for the use of their money and reflects the rate of exchange of present consumption for future consumption.

Internal Rate of Return

The discount rate at which the present value of future cash flows equals the initial investment outlay, used to evaluate the profitability of potential investments.

Intrinsic Value

Intrinsic value refers to the inherent, true value of an asset, determined by fundamental analysis without reference to its market value. It is often calculated using data inputs in a valuation model.

Joint Venture

A business arrangement where two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. Each of the participants is responsible for profits, losses, and costs associated with the venture.

Junk Bonds

Debt securities issued by companies with higher than normal credit risk, classified as 'non-investment grade' bonds. These securities typically offer a higher rate of interest to compensate for the increased risk.

Key Employee

In the context of top heavy plans, a key employee is defined as 1) an officer of the employer earning more than $130,000; 2) an individual who owns more than 5 percent of the employer; or 3) an individual who owns more than 1 percent of the employer and has compensation greater than $150,000.

Labor

Physical or mental effort exerted during work or tasks.

Limited Partnership

A business structure where one or more general partners manage the business and are personally liable for partnership debts, while one or more limited partners contribute capital and share profits but their liability is limited to the extent of their investment.

Loan

A financial arrangement in which a lender provides a sum of money to a borrower with the expectation that the borrower will return the amount over a specified period, often with interest.

Long-Term Gain

A profit realized from the sale or exchange of a capital asset held for more than one year, subject to long-term capital gains tax, which is typically lower than the tax on short-term gains.

Long-Term Liability

A debt that falls due more than one year in the future, or beyond the normal operating cycle, and is typically to be paid out of noncurrent assets.

Marginal Tax Rate

The percentage of tax applied to an individual's or entity's income for each additional dollar of income.

Market Value

The price at which an asset would trade in a competitive auction setting, often used to refer to the current price of a stock or bond on the open market.

Materiality

The significance of an omission or misstatement of accounting information that, in the context of surrounding circumstances, could influence the judgment of a reasonable person relying on the information.

Net Asset Value (NAV)

Net Asset Value (NAV) is the market value per share of a mutual fund or an exchange-traded fund (ETF). It is calculated by dividing the total value of all the assets in the portfolio, minus any liabilities, by the number of shares outstanding.

Notes Receivable

Notes receivable are written promissory notes that represent money owed to an entity, typically due within one year, and are recognized as assets on the balance sheet.

Notional

A value assigned to assets or liabilities that is not based on cost or market value, often used in financial contracts to specify the quantities upon which payments are based.

Operating Agreement

A written document that outlines the governance and operational guidelines of a Limited Liability Company (LLC), serving a similar purpose to corporate bylaws or a partnership agreement.

Operating Profit (or Loss)

Operating profit or loss is the difference between a company's revenues and its related costs and expenses, derived exclusively from its regular business activities, before deductions for interest and taxes.

Option

An option is a financial derivative that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) within a specified time period.

Paid in Capital

The portion of stockholders' equity that comes from the capital contributed by investors through the purchase of stock at issuance, excluding any capital generated from earnings or donations.

Principal

The original sum of money borrowed in a loan, or the amount of the investment, exclusive of any interest or dividends. It also refers to the party whose interests are represented by an agent in a principal-agent relationship.

Qualified Opinion

An audit opinion that states the financial statements are fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), except for the effect of a matter to which a qualification relates, often due to a scope limitation or inability to obtain sufficient appropriate audit evidence.

Quick Ratio

A liquidity metric that measures a company's ability to cover its current liabilities with its most liquid assets, without relying on the sale of inventory.

Retained Earnings

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

Return on Assets

A financial metric that measures the profitability of a company relative to its total assets, calculated by dividing net income by average total assets. This ratio indicates how efficiently a company is using its assets to generate earnings.

Return on Equity

A financial ratio that measures the profitability of a company in relation to the shareholders' equity, calculated by dividing net income by average shareholders' equity.

Safe Harbor Rule

A provision in statutes and regulations that offers protection from adverse legal action or penalties if specific conditions are met, particularly when a legal requirement is ambiguous or carries a risk of unintended violation.

Sale-Leaseback Transaction

A financial arrangement in which a property owner sells an asset, typically real estate, to a buyer and then leases it back from the buyer. This enables the seller to continue using the asset while converting it into capital.

Separate Entity

A principle in accounting where a business is considered distinct and separate from its owners, creditors, and other businesses, allowing for independent financial and legal transactions.

Short Sale

A financial transaction where an investor sells an asset they do not currently own, typically securities, with the intention of repurchasing them later at a lower price. The investor borrows the asset to make the sale and later buys it back to return it to the lender.

Tax Lien

An encumbrance placed on property as security for unpaid taxes, giving the taxing authority a legal claim against the property until the debt is paid.

Tax Shelter

A tax shelter is a legal arrangement where certain investments or financial decisions are made to reduce, defer, or eliminate tax liabilities.

Transfer Tax

A tax imposed by the government on the transfer of ownership of property, including gifts and estates, as transactions occur.

Unearned Interest

Interest that has been collected on a loan by a financial institution but cannot yet be recognized as earnings because the principal of the loan has not been outstanding for a sufficient period.

Unlimited Liability

A legal obligation where all business owners are personally responsible for all debts of the business, without any limit on the amount for which they are liable.

Variable Costs

Total costs that change in direct proportion to changes in productive output or any other measure of volume.

Variable Rate Loan

A loan whose interest rate changes over its life in relation to the level of an index, allowing for fluctuating payments.

Warrant

A security issued by a corporation that gives the holder the right to purchase a specific amount of stock at a specified price within a certain time frame. Warrants are similar to call options but are issued directly by the company and have longer durations.

Weighted-Average-Cost Method

An inventory costing method used under the periodic inventory system that calculates the cost of ending inventory and the cost of goods sold based on the weighted average cost of all items available for sale during the period.

Yield

The income return on an investment, such as dividends or interest, expressed as a percentage of the investment's cost or current market value.

Yield Curve

A graph that illustrates the relationship between interest rates and the maturities of debt securities of the same credit quality, showing how these rates vary with different maturity dates.

Zero-Coupon Bond

A bond on which the holder receives only one payment at maturity, which includes both the principal and the interest accrued from issuance to maturity.

All Accounting Terms (Alphabetical)

401(k) Plan

A retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out. Contributions are made to an individual account, and taxes are not paid on the money until it is withdrawn from the account.

A Misstatement is Inconsequential

A misstatement is considered inconsequential if, after considering the possibility of additional undetected misstatements, a reasonable person would conclude that the misstatement, either individually or when aggregated with other misstatements, would clearly be immaterial to the financial statements.

ADR

American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing a specified number of shares in a foreign stock traded on a U.S. exchange.

AICPA

The American Institute of Certified Public Accountants (AICPA) is a national professional organization that represents Certified Public Accountants (CPAs) in the United States. The AICPA sets ethical and auditing standards, as well as standards for other services performed by its members. It also collaborates with the Financial Accounting Standards Board (FASB) and the Government Accounting Standards Board (GASB) in establishing accounting principles and provides specialized industry guidance through its committees.

AMT

The Alternative Minimum Tax (AMT) is a supplemental income tax imposed to ensure that individuals and corporations with high economic income pay a minimum level of tax, regardless of deductions, credits, or exemptions.

APB

APB, or Accounting Principles Board, was a senior technical committee of the American Institute of Certified Public Accountants (AICPA) that issued pronouncements on accounting principles from 1959 to 1973, before being replaced by the Financial Accounting Standards Board (FASB).

Abatement

The complete removal or reduction of an amount due, often applied to tax, penalty, or interest abatements within a governing agency.

Absorption Costing

A product costing method that includes all manufacturing costs--direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead--in the cost of a product.

Accelerated Depreciation

A method of depreciation that allows for greater depreciation expense in the early years of an asset's life and less in the later years, compared to straight-line depreciation.

Account

A formal record in bookkeeping that represents various assets, liabilities, income, and expenses, and reflects all transactions or events that cause changes to these financial elements.

Account Payable

Amounts owed by a company to creditors for goods or services that have been delivered or completed but not yet paid for.

Account Receivable

A financial record representing the amount owed to a business, typically from sales or services rendered, that has not yet been collected from the debtor.

Accountable Plan

An accountable plan is a reimbursement or expense allowance arrangement set by an employer that meets specific IRS criteria to exclude payments from an employee's gross income. These criteria include: providing reimbursements for job-related expenses, requiring employees to substantiate these expenses, and mandating the return of any excess payments.

Accountant

A professional skilled in the recording, analyzing, and reporting of financial transactions, ensuring the accuracy of financial statements and compliance with applicable laws and regulations.

Accountants' Report

A formal document issued by an independent accountant that includes various types of evaluations such as limited assurance on financial statements (review report), results of specific procedures agreed upon (agreed-upon procedures report), a compilation of financial statements without assurance (compilation report), or an opinion on management's assertion following attestation standards (attestation report). An accountants' report is distinct from an audit report as it does not involve the comprehensive examination associated with an audit.

Accounting

The systematic process of recording, reporting, and analyzing financial transactions of a business to ensure accurate financial statements and compliance with financial reporting standards.

Accounting Change

A modification in an accounting principle, an accounting estimate, or the reporting entity that requires full disclosure and explanation in published financial reports to ensure transparency and consistency in financial reporting.

Accounting Cycle

The sequence of steps followed in the accounting process to measure business transactions and transform these measurements into financial statements for a specific period.

Accounting Principles Board (APB)

A senior technical committee of the American Institute of Certified Public Accountants (AICPA) that issued pronouncements on accounting principles from 1959 to 1973, before being replaced by the Financial Accounting Standards Board (FASB).

Accounts Payable Subsidiary Ledger

A detailed financial record within the general ledger that tracks individual accounts payable transactions. This ledger allows for the daily entry and tracking of amounts owed to creditors, facilitating detailed financial management and reconciliation.

Accounts Receivable Turnover

A financial metric used to measure a company's efficiency in collecting cash from credit customers, calculated by dividing net sales by the average accounts receivable.

Accrual

The recognition of revenue or expenses that have been earned or incurred but not yet recorded in the accounts.

Accrual Accounting

Accrual accounting is an accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash transactions occur. This approach aligns with the matching principle, which aims to match revenues with related expenses in the period in which the economic activity occurs.

Accrual Basis

A method of accounting that recognizes revenue when it is earned and expenses when they are incurred, regardless of when the cash transactions occur.

Accrued Expense

An expense that has been incurred but not yet paid or recorded in the financial statements.

Accrued Interest

Interest that has accumulated on a bond or other fixed-income security between the most recent payment and the sale or current date.

Accumulated Depreciation

The total depreciation recorded for an asset or group of assets from the time they were placed in service until the date of the financial statement or tax return. This amount is recorded as a contra account to the related asset account, reducing the asset's book value on the balance sheet.

Accumulation

In finance and corporate settings, accumulation refers to the process of reinvesting earnings, dividends, or capital gains back into the company or investment vehicle instead of distributing them as dividends. This can also refer to the strategic purchase of shares over time by an institutional broker to avoid influencing the share price.

Acid-Test Ratio

A financial metric that measures a company's ability to meet its short-term obligations using its most liquid assets, excluding inventory. It is calculated by dividing the sum of cash, cash equivalents, short-term investments, and current receivables by the total current liabilities.

Acquisition

The process by which one company takes over controlling interest in another company, typically through the purchase of its shares or assets.

Actuary

A professional mathematician, typically employed in the insurance industry, responsible for calculating premiums, reserves, dividends, and rates for insurance, pensions, and annuities based on risk factors derived from experience tables.

Additional Paid in Capital

Amounts paid by shareholders for stock in excess of its par value or stated value, which are credited to equity accounts other than capital stock.

Adjusted Basis

The adjusted basis of a property is the original cost basis after being adjusted for additions, improvements, and other capital expenditures, as well as deductions for depreciation, depletion, and other returns of capital. This adjusted figure is used to calculate capital gains or losses upon the sale or disposition of the property.

Adjusted Gross Income

Adjusted Gross Income (AGI) is the gross income of an individual reduced by specific deductions allowable by the IRS. AGI is used to determine the taxable income and is crucial for calculating permissible deductions and credits.

Adjusted Trial Balance

A trial balance that is prepared after all adjusting entries have been made and posted to the ledger accounts, ensuring that the total debits equal the total credits.

Adjusting Journal Entry

An accounting entry made in the general journal to account for changes, corrections, or updates to financial data that were not captured in the regular accounting periods. These entries are essential for ensuring that the financial statements reflect accurate and up-to-date information at the end of an accounting period.

Adverse Opinion

An expression of opinion in an auditor's report which states that financial statements do not fairly present the financial position, results of operations, and cash flows in conformity with Generally Accepted Accounting Principles (GAAP).

Affiliated Company

A company or organization related to another through common ownership, control of management, or other control mechanisms such as a long-term lease.

Agency Fund

An Agency Fund is a type of fund consisting of assets held by an entity that acts as an agent on behalf of a specified beneficiary. The entity agrees to remit the assets, income from the assets, or both, to the beneficiary either at a specified time or upon the occurrence of a designated event.

Allocate

To distribute resources or assign duties for a specific purpose or to particular persons or things.

Allowance for Doubtful Accounts

A contra-asset account used to reduce the total accounts receivable on a company's balance sheet to the amount that is realistically expected to be collected in cash.

Alternative Dispute Resolution

A range of dispute resolution methods outside of formal litigation, including arbitration, mediation, and non-binding summary jury trials, used to resolve conflicts more efficiently and with potentially less cost.

Alternative Minimum Tax (AMT)

A federal tax designed to ensure that individuals, estates, trusts, and corporations with significant economic income pay a minimum level of income tax, regardless of deductions, exemptions, or other tax breaks they may otherwise be able to claim.

American Depository Receipt (ADR)

A certificate issued by a U.S. bank representing a specified number of shares in a foreign stock traded on a U.S. exchange. ADRs make it easier for Americans to invest in foreign companies, as the receipts are traded on U.S. markets as domestic shares.

American Institute of Certified Public Accountants (AICPA)

A national professional organization that represents Certified Public Accountants (CPAs) in the United States. The AICPA sets ethical and auditing standards, as well as standards for other services performed by its members. It also collaborates with the Financial Accounting Standards Board (FASB) and the Government Accounting Standards Board (GASB) in developing accounting principles and provides specialized industry guidance through its committees.

Amortization

The process of gradually reducing the value of an intangible asset or the balance of a loan through periodic payments, which may include principal and interest components, over a specified period of time.

Analyst

An employee in a financial institution such as a brokerage house, bank trust department, or mutual fund group who evaluates companies and industry sectors to make investment recommendations, often specializing in a specific industry.

Analytical Procedures

Analytical procedures are substantive tests of financial information which involve examining relationships among data to obtain evidence. These procedures include comparing financial information with previous periods, anticipated results, industry norms, and studying relationships between financial elements that should follow predictable patterns based on historical experience.

Annual Report

A comprehensive report issued annually by a company to its shareholders, encompassing the company's annual, audited financial statements including the balance sheet, statements of earnings, stockholders' equity, cash flows, and other pertinent financial and business information.

Annuity

A financial product typically issued by an insurance company, which provides a series of payments to the holder at specified intervals for a fixed period or for the lifetime of the holder.

Anti-Dilution

Provisions used to protect shareholders from the dilution of their ownership percentage in a company, typically triggered by the issuance of new shares in the company at a price lower than what current shareholders paid. These provisions adjust the conversion rates or prices of existing convertible securities like stock options, warrants, convertible debt, or convertible preferred stock.

Appreciation

An increase in the value of an asset, such as a stock, bond, commodity, or real estate, over a period of time.

Assembly of Financial Statements

The process in which an accountant provides various accounting or data-processing services to compile financial statements, primarily intended for internal management purposes.

Assertion

Explicit or implicit representations by an entity's management that are embodied in financial statement components, which are evaluated by an auditor to form an opinion on the financial statements.

Asset

An economic resource owned by an individual or entity, tangible or intangible, that is expected to provide future economic benefits as a result of past transactions or events.

Asset Turnover

A financial ratio that measures how efficiently a company uses its assets to generate sales, calculated by dividing net sales by average total assets.

At Par

A term used when a security is issued or traded at its face or nominal value.

Audit

A systematic and independent examination of a company's financial statements, records, and operations by a qualified professional, such as a CPA, to ensure accuracy, adherence to generally accepted accounting principles (GAAP), and to provide an accountant's opinion.

Audit Documentation

The written record of the basis for the auditor's conclusions, providing support for the auditor's representations, whether contained in the auditor's report or otherwise. These records are commonly referred to as work papers or working papers.

Audit Engagement

An agreement between a CPA firm and its client to conduct an audit, where the CPA firm is engaged to examine the financial statements and records of the client and to produce a report that reflects the findings.

Audit Risk

The risk that an auditor may not detect material misstatements in the financial statements, leading to an inappropriate audit opinion.

Audit Sampling

The application of audit procedures to a subset of items within an account balance or class of transactions to evaluate some characteristic of the balance or class, without examining all items.

Auditing Standards

Guidelines that outline the professional qualities and judgment required of auditors when conducting an audit and preparing the auditors' report. These standards ensure the accuracy, consistency, and verifiability of auditors' actions and reports, and are typically in accordance with Generally Accepted Auditing Standards (GAAS) as approved by the American Institute of Certified Public Accountants (AICPA).

Auditor

A professional who conducts an official inspection of an organization's accounts, typically by an independent body, to ensure accuracy, adherence to regulatory guidelines, and to verify that financial records are fair and correct.

Auditors' Report

A written communication issued by an independent certified public accountant (CPA) that describes the nature of the audit work and the level of responsibility assumed. The report states that the audit was conducted according to Generally Accepted Auditing Standards (GAAS), which aim to provide reasonable assurance that the financial statements are free from material misstatement. It also includes the auditor's opinion on the accuracy of the financial statements.

Authorized Shares

The maximum number of shares of any class that a company is legally allowed to issue as specified in its articles of incorporation.

Average Days’ Inventory On-Hand

The average number of days required to sell the current inventory of products available for sale, calculated by dividing the number of days in a year by the inventory turnover rate.

Average Days’ Sales Uncollected

A financial metric that indicates the average number of days it takes for a company to collect payments after a sale has been made on credit.

Average-Cost Method

A method used in accounting to calculate the cost of inventory by determining the average cost of all goods available for sale during a specified period, which is then used to value the ending inventory and cost of goods sold.

Backup Withholding

Backup withholding is the mandatory withholding of income tax from payments such as interest, dividends, and other types of reportable income by payors like banks and businesses. This withholding occurs when the recipient fails to provide a Taxpayer Identification Number (TIN) or to certify that they are not subject to backup withholding, as directed by the IRS.

Bad Debt

A portion or the entirety of an account, loan, or note receivable that is deemed uncollectible.

Balance

In accounting, balance refers to the equality between the sum of the debit and credit sides of an account. It is also used to describe the preparation and presentation of a balance sheet, which details an entity's assets, liabilities, and the equity of its owners at a specific date.

Bank Reconciliation

A process by which an accountant verifies the accuracy of a company's cash account in its general ledger against its bank statement, identifying any discrepancies to adjust the accounting records accordingly.

Bank Statement

A periodic statement, typically issued monthly, by a bank to the account holder detailing all transactions that have occurred within the account. It includes the opening balance, deposits, withdrawals, fees, and the closing balance for the period.

Bankruptcy

A legal process governed by federal statute in which an insolvent debtor's assets are liquidated and managed by a court-appointed trustee to satisfy debts to the greatest extent possible.

Base Market Value

The average market price of a group of securities at a given time.

Beginning Inventory

The quantity of merchandise or goods that a company has available for sale at the start of an accounting period.

Bequest

Property or assets left to an heir or a beneficiary under the terms of a will.

Beta Coefficient

A measure of a stock's relative volatility, indicating how its price movements are related to the overall stock market. The beta coefficient is calculated as the covariance of the stock's returns with the market's returns, divided by the variance of the market's returns.

Bid and Asked

In trading, 'bid' refers to the highest price a buyer is willing to pay for a security, while 'asked' is the lowest price a seller is willing to accept. The difference between these two prices is known as the 'spread'.

Blue Sky Laws

State regulations designed to protect investors from securities fraud by governing the issuance and registration of securities, coordinated with federal securities laws.

Board of Directors

A group of individuals elected by the shareholders of a corporation to oversee the management and affairs of the entity, ensuring that organizational activities align with established policies and objectives.

Bond

A bond is a type of long-term promissory note, issued as a security under federal or state laws, where the issuer borrows funds from the bondholder and agrees to pay back the principal amount at a specified maturity date, along with periodic interest payments.

Bond Discount

The amount by which the selling price of a bond is less than its par value.

Bond Indenture

A legal contract associated with a bond issue that specifies the terms of the bond, including the rights, privileges, and obligations of the bondholders and the issuer.

Bondholder

An individual or entity that owns a bond issued by a government or corporation, possessing rights to receive interest payments and the return of principal as stipulated in the bond's terms.

Book Value

The net amount that an asset or liability is recorded on the balance sheet, also known as the carrying value. It is calculated by deducting accumulated depreciation, amortization, or impairments from the original cost of the asset.

Bookkeeping

The process of systematically recording, organizing, and maintaining financial transactions and information for a business or individual.

Boot

In financial and tax contexts, 'boot' refers to any additional cash or property added to a transaction to balance the value of exchanged properties, typically in transactions that are otherwise nontaxable.

Bottom Line

The final line in a financial statement that shows the net income or loss, reflecting the financial performance of a company over a specific period.

Break-Even Point

The financial point at which total revenues exactly equal total costs, resulting in no net loss or gain.

Break-Even Units

The number of units of a product that a company needs to sell to cover all its costs associated with producing those units, both direct and indirect. Selling beyond this point begins to generate profit.

Budget

A budget is a financial plan that serves as an estimate of future costs, revenues, or both, often detailed into specific categories like advertising, sales, or capital investments.

Burden Rate

The burden rate is a calculation used to determine the overhead costs associated with a specific level of activity, such as labor or machine hours. This rate is typically expressed as a standard rate multiplied by the activity measure to allocate overhead costs accurately to specific tasks or projects.

Business Combinations

Business combinations refer to the process where two or more entities are consolidated into one entity through various methods such as purchase or pooling of interests. In the purchase method, one entity acquires another and establishes a new accounting basis for the acquired entity's assets and liabilities. In pooling of interests, entities merge by exchanging common stock, and the carrying values of assets and liabilities remain unchanged.

Business Segment

A distinct part of a company that is authorized to operate under substantial control by its own management, often with separate financial and operational guidelines.

Buyout

The purchase of a controlling interest in a company's stock, which enables the acquirer to take over its assets and operations. This can be effected through a leveraged buyout, where the purchase is made with borrowed money.

Bylaws

Bylaws are a collection of formal, written rules that govern the management and operational procedures of a corporation or organization, including the roles of officers and the process of making decisions.

CAPM

The Capital Asset Pricing Model (CAPM) is a sophisticated financial model that describes the relationship between expected risk and expected return of an investment. It is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk.

CD

A formal financial instrument issued by a bank, representing a time-bound deposit from which funds cannot be withdrawn until a specified period has elapsed without incurring a penalty.