Financial Words You Should Know: Over 1,000 Essential Investment, Accounting, Real Estate, and Tax Wordsby Michele Cagan, P.T. Shank

251 Pages·2010·1 MB·English

by  Cagan

Financial
Words You
Should Know
Over 1,000 Essential Investment,
Accounting, Real Estate, and Tax Words
Michele Cagan, CPA and P.T. Shank
Copyright © 2009 by F+W Media, Inc.
All rights reserved.
This book, or parts thereof, may not be reproduced in any
form without permission from the publisher; exceptions are
made for brief excerpts used in published reviews.
Published by
Adams Media, a division of F+W Media, Inc.
57 Littlefield Street, Avon, MA 02322. U.S.A.
www.adamsmedia.com
ISBN 10: 1-60550-035-6
ISBN 13: 978-1-60550-035-5
eISBN: 978-1-44052-043-3
Printed in the United States of America.
J I H G F E D C B A
Library of Congress Cataloging-in-Publication Data
is available from the publisher.
This publication is designed to provide accurate and authoritative information with regard to the subject
matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal,
accounting, or other professional advice. If legal advice or other expert assistance is required, the services
of a competent professional person should be sought.
—From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a
Committee of Publishers and Associations
Many of the designations used by manufacturers and sellers to distinguish their product are claimed as
trademarks. Where those designations appear in this book and Adams Media was aware of a trademark
claim, the designations have been printed with initial capital letters.
Disclaimer: This book is not intended to take the place of professional financial advice. Please speak to a
professional financial planner before making any decisions about your money.
This book is available at quantity discounts for bulk purchases.
For information, please call 1-800-289-0963.
This book is dedicated to Yogi,
my best boy (my key grip).
—MICHELE CAGAN
This book is dedicated to David Willis . . .
for all the reasons it deserves to be.
—P.T. SHANK
Contents
Introduction
Financial Words You Should Know is categorized
into the following sections:
Accounting
Banking
Bonds
Economy
Financial Planning
Fund Investing
Investing
Real Estate
Retirement
Stocks
Taxes
I Acknowledgments ’d like to thank P. T. Shank,
someONE I’ve really come to count on. Also,
thanks to Jacky Sach, who’s done so much for my
career. And a big thanks to my ice cream supplier,
without whom I would have had nothing to eat while
writing this book.
—Michele Cagan
As with any book, there are people I must thank. First, Michele Cagan for
one! One New Book! HAH-Hah-hah. Al Burgos, who taught me so much
last time that I was able to use again this time. Heather McLean and Steve
Tolle, for being such amazing cheerleaders from the very beginning. The usual
suspects—Mitchell and Ed; Christine and Scott; Bridget and the Muppet; and
Shanna—for just being there. Always. And, of course, Dr. C. Rex Mix and Betty
Witt.
—P. T. Shank
Introduction
If you’re over the age of eighteen, you either have a retirement account or
know you’ll need one. At some point in your life, you’ve probably at least
thought about buying a house, a condo, or a car. And most of us understand
the general idea of investing, managing our finances, and using our money to
make more money. It’s the details that sometimes bog us down.
For too many people, our retirement and savings planning is limited to the
annual visit from the HR department where we work. They come in, talk about
insurance, assets, retirement, and mutual funds . . . and it all goes straight over
our heads. For those of us who are self-employed and have to wade through all
the options without the benefit of a human resources representative, it can be
even more daunting. Mutual funds, money market accounts, stocks, bonds,
derivatives . . . sometimes it seems as if it would be easier to keep our money
under our mattresses and hope for the best. But that’s probably not an ideal
solution and it makes your mattress very lumpy. So what to do?
That’s where Financial Words You Should Know comes in. While this book
won’t, and shouldn’t, replace sound financial advice, it will help you better
understand the advice you’re getting. It has more than 1,000 of the most
commonly used financial words and phrases you are likely to come across.
Finances are important—too important not to understand. Financial Words
You Should Know can help. And you won’t need to sleep on a lumpy mattress.
Financial
Words You
Should Know
ACCOUNTING
Accountant’s opinion
A formal statement prepared by an independent certified public accountant
(CPA) that spells out his judgment about the veracity and completeness of a set
of financial statements prepared by company. When he believes those statements
to be materially complete and accurate, his judgment will be “unqualified.” A
“qualified” judgment indicates that the statements may not be reliable sources of
information, and that potential investors should beware.
See also: Annual report, CPA, Financial statements
Pete needed an accountant’s opinion before the bank would even consider
his request for a business loan.
Accounts payable (AP)
Short-term liabilities incurred by a business when it buys on credit from
suppliers. Often associated with inventory purchases.
See also: Balance sheet, Liabilities
The flight school’s bookkeeper kept track of the accounts payable to ensure
the school stayed in good standing with their vendors.
Accounts receivable (AR)
An asset held by a business that measures the money still owed to them for their
credit sales, but AR does not include credit card sales, unless the card is issued
by that business, for instance, a department store card.
See also: Asset
The accounts receivable office kept track of who owed the company money.
Accrual
An accounting term used to describe revenue or expenses recognized although
no cash has yet changed hands (for example, interest earned but not yet
received).
See also: Accounts payable, Accounts receivable
The bookkeeper accounted for all the accruals at the end of the period so the
company’s books would be accurate when the tax accountant arrived.
Accrued interest
Money earned on an investment but not yet paid, typically occurring for
investments (such as bonds) with fixed earnings and payout dates.
See also: Bond
Jack kept track of his accrued interest so he knew approximately how much
to expect when the check came.
Accumulated depreciation
An accounting measure that holds the cumulative total of depreciation taken
over the life of an asset.
See also: Asset, Depreciation
The accumulated depreciation on the machinist’s equipment made it appear
worthless on the books, even though it was really worth thousands of dollars.
Acid-test ratio
A measure of a company’s ability to pay its short-term liabilities on time without
having to sell off inventory. Calculated by dividing total short-term liabilities
into the sum of cash, accounts receivable, and short-term investments. Results of
1.0 and higher indicate good liquidity. Also called the “quick ratio.”
See also: Liabilities, Liquidity, Ratio analysis
Juanita always showed her clients the results of the acid-test ratio before
recommending an investment in a particular company.
Acquisition cost