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This page is only a sample of a future glossary
Glossary
To quickly find what you are looking for - Click the Corresponding letter below
For your benefit we've included a brief definition of selected business, tax, financial and real estate terms. Keep in mind that the definitions are abbreviated and, as with all terms, accepted usage can vary by industry, area of the country, etc.
Accountant's Opinion:
If a independent certified public accountant is requested to
audit a company's books, he will issue a
opinion as to the condition of the financial statements. There
are several degrees of opinion from clean to adverse. A clean
opinion doesn't mean that every number is correct, only that the
financials fairly represent the position of the company. An
adverse opinion means the financials don't represent the position
of the company. A disclaimer means the auditor can't (for any
number of reasons) express an opinion on the statements.
Accounting Equation: Simply stated, assets are equal to liabilities plus owners' equity.
Accounting Method: Any number of approaches for calculating the income of an entity. Usually applied to the general means of recognizing income and expenses, e.g., cash or accrual. But it can also apply to method of keeping inventories, etc.
Accounting Procedure: Similar to accounting method, but applied to more routine issues. For example, the method of computing depreciation, handling small capital expenditures.
Accounting Rate of Return: A method of computing the profitability where the total cash inflow over the life of the project is reduced by expenses. This amount is divided by the estimated life of the project to arrive at an annual return. That's divided by the investment's cost. The result is an average rate of return. See Discounted Cash Flow.
Accrue: To record an item in the accounting
books when using the accrual method of accounting. For example,
you accrue
income when the customer signs a contract, even though you won't
receive any cash at that time. When you accrue an item of
income or expense can depend on a number of factors including the
entity's procedures. IRS requirements here frequently
diverge from accounting rules.
Accumulated Depreciation: The total depreciation taken on an asset since it was acquired.
Active Participation: Involvement in a rental
real estate activity making management decisions. Requires no
specific number
of hours.
Activity: For the passive activity rules, it's the integral economic unit for measuring a taxpayer's level of participation in a trade or business. One location can have more than one business activity. For example, you might have an S corporation that sells computers at retail and does typesetting working out of the same location. The two may be separate activities. On the other hand, two or more related businesses can also be combined into one activity.
Additional Paid-In Capital: Equity
contributions to a corporation in excess of the amount of capital
stock. See Owner's
Equity, below.
Add-On Interest: Interest that isn't paid by the debtor, but added to the principal amount.
Adjusted Gross Income: Also known as AGI, it's your individual income before personal exemptions or standard or itemized deductions. It's the total of wages, interest, dividends, capital gains (or up to $3,000 in losses), profit or loss from real estate or pass-through entities (e.g., S corporation), pension income and certain other items less contributions to an IRA or Keogh plan, one-half of any self- employment income, and health insurance for self-employed individuals, and certain other deductions.
Adjusting Entry: An accounting entry made after the original entry to correct an earlier one.
Advances: Funds made available to another party. In the case of a loan, it's the disbursement of funds under a note. In tax parlance it often means something between a formalized loan and equity. For example, a shareholder puts money into a corporation with the intention of being paid back shortly.
Aggregation: The combination of several business operations into a larger unit. Primarily used to combine passive trade or business undertakings into one or more activities in order to determine whether a taxpayer is a material participant.
All-Risk: An insurance policy covering real or personal property against any loss except those specifically excluded.
Amortization: This is similar to straight-line depreciation, allowing a business or individual to write off an expenditure over a number of years. Amortization generally applies to intangible assets. For example, you purchase a business consisting of a machine with a fair market value of $10,000 and goodwill of $15,000. You can't expense (write off) the cost in the year acquired, but you can depreciate the machine using any of several methods, including one that provides greater deductions in the early years. The goodwill can only be amortized over 15 years using a straight-line method, or $1,000 per year.
Annual Percentage Rate (APR): The effective interest rate required to be disclosed under the Truth in Lending Act.
Annuity: The dictionary definition is a contract issued by an insurance company that pays an annuitant an amount periodically for a certain time for the remainder of his life. Common usage has expanded that definition to the point where you must dig deeper to understand the meaning. Variations include a deferred annuity where you make payments into a fund over a period of years (where tax on the fund's income is deferred), an immediate annuity (the original definition) or many other plans where a series of payments, either into or out of the fund, are involved.
Assessments: The right to secure additional payments from partners or co-venturers in a project.
Assumption: An agreement where the purchaser agrees to make the payments on an existing mortgage on the property. The original borrower remains liable unless he is specifically released.
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Balloon Payment: The final installment on a loan which is greater than the prior payments and pays any remaining amount outstanding under the loan. For example, a loan calls for equal monthly payments of $500, where most of the payment is for interest. At the end of the loan a balloon payment of $100,000 is due.
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