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ATW Miller Group | Glossary of TermsGlossary of Terms

Glossary of Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Account Balance
The net of credits and debits for an account at the end of a reporting period.

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Account Reconciliation
The process of ensuring that the beginning balance plus the sum of all entries on an account statement equals the ending balance. After deposits, interest received, and credits are added and automatic withdrawals, outstanding checks, negotiated checks, and account charges are subtracted, if the resulting balance equals the ending balance on the statement, the account is reconciled.

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Accounts Payable
Obligations to pay for goods or services that have been acquired on open accounts from suppliers. A current liability in the Balance Sheet, often referred to as "payables".

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Accounts Receivable
Amounts due the company on account from customers who have bought merchandise or received services. Accounts Receivable is a current asset in the Balance Sheet.

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Accrual Basis
The method of keeping accounts, which shows all expenses incurred and income earned for a given period of time, even though such expenses and income may not actually have been paid or received in cash during the same period of time.

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Accrued Expense
An expense incurred, but not yet paid.

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Accrued Revenue
Revenue earned, but not yet collected.

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Accumulated Depreciation
An account to which estimated depreciation is added.

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Agent
A person authorized by another to act on their behalf. Thus, an agent can enter into contracts and other such legal binding functions on behalf of another. Usually, the corporation's officers act as corporate agents.

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Amortization
A way of measuring the consumption of the value of long-term assets such as equipment or buildings. This process gradually eliminates a debt, loan, or mortgage over a period of time. It can also be used to deduct capital expenses over a period of time.

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Annual Meeting of Shareholders
Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.

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Annual Percentage Rate (APR)
The yearly cost of credit or a loan, expressed as a simple percentage.

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Annual Report
A yearly statement that describes company management, operations, and financial information. The Securities and Exchange Commission (SEC) requires all corporations issuing registered stock to publish annual reports, which are sent to shareholders and also made available for public review.

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Application Fee
A fee to process a loan application.

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Appraisal
An assessment of a property's value by a qualified appraiser, based on information from recent sales of similar properties.

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Appreciation
Increase in value. Often used with reference to an asset, such as land, building, stocks or bonds.

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Articles of Incorporation
The articles are the primary legal document of a corporation; they serve as a corporation's constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the corporation as required by state law.

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Articles of Organization
LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation's articles of incorporation.

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Asset
Anything of value owned or controlled by a corporation or individual. An asset may be tangible or intangible.

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Asset Allocation
A process that divides investments among different asset classes, such as stocks, bonds, and cash, in order to reduce portfolio risk.

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Assignment
The legal transfer of ownership of an asset to another person or entity.

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Bad Depts
Accounts receivable that are uncollectible used in accrual method accounting.

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Balance
Amount arrived at by adding all debits and subtracting all credits to ensure total debits equal the total credits.

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Balance Sheet
Statement, at a particular point in time, of the financial position of a business or organization. This is generally divided into three parts: assets, liabilities and ownership, or equity. Also known as Statement of Financial Position.

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Bank Reconcilation
Analysis that accounts for the difference between the balance shown on the bank statement and the balance shown in the accounting records on a given date.

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Basis
The total original cost (including any additional outlays) of an equity investment or a piece of property. This is used by the Internal Revenue Service to compute taxable gain, profit, or appreciation.

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Basis Point
A measurement of variation in financial instruments, equal to .01%. For example, a yield that has increased from 8.97% to 9% has increased by 3 basis points.

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Bill of Lading
Written document issued by the carrier of goods. Also, a receipt for goods and a contract to deliver goods.

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Bookkeeping
The recording of financial transactions electronically or manually. The record-keeping part of the accounting process.

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Budget
A report of projected income and expenses for a given period.

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Business Succession
A plan for the future transfer of a business entity, involving legal, financial, tax, and family concerns.

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Business Taxes
A government levy on income for businesses.

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Buy-Sell Agreement
A contract that provides for the purchase of all outstanding shares from a business owner. Generally, such contracts allow for a different ownership structure in the future.

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Bylaws
Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. At the corporation's initial meeting the bylaws are adopted. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend.

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Capital (or Equity)
Interest of the owner in the business that is the difference between Assets & Liabilities. Also called Equity or Net worth. In a corporation, capital represents the stockholders' equity.

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Cash Basis
An accounting method that counts cash inflows or outflows when they are actually expended or received (as opposed to accrual basis).

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Cash Budget
A budget used to quantify an immediate short-term cash flow.

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Cash Flow
The aggregate of all cash inflows and outflows. This can be expressed as positive or negative cash flow.

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Cash Management
The process of channeling cash into expenditures that enhance productivity.

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Certified Public Accountant
A professional accountant who has received certification to practice accounting from a state board of examination and may also be a member of the American Institute of Certified Public Accountants or other various state CPA organizations.

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Combined Financial Statement
A side-by-side accounting of balance and net worth statements for several affiliated business enterprises.

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Common Stock
A security that represents partial ownership or equity in a corporation. Holders of common stock are entitled to participate in the company's stockholder meetings and vote for the board of directors.

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Consolidated Financial Statements
Financial statements that show the results of all operations under the parent company's control, including those of any subsidiaries.

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Controlling Interest
Direct or indirect ownership of voting shares sufficient to elect the majority of the board of directors of a corporation.

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Corporate Bond
A debt security issued by a corporation that obligates the issuer to pay interest periodically and repay the principal at maturity. Corporate bonds often have higher interest rates than government bonds due to possible default risk.

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Corporate Record Book
Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book that contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.

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Corporation
A group of people acting jointly for business and tax purposes who are able to incur debt and realize profit without immediate legal or taxable liabilities. A corporate entity allows its owners to attract outside capital by selling shares of ownership, protects the owners from liability beyond their investment outlay, provides for continuity of operations beyond the lives of the current owners and allows changes in ownership through the transfer of shares.

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Credit
Entry recording an increase to a liability or owner's equity or revenue, or a reduction to an asset or expense. Credits are recorded in the right hand column of an account or a two-column book. Opposite of debit.

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Credit Bureau
Clearinghouse of consumer credit information used by businesses to determine the credit

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Credit History
A record of how a party has paid past debts.

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Credit Line
A revolving agreement that allows a person to borrow any amount up to a preapproved limit for purchases or cash advances. When the outstanding balance is paid off, credit again becomes available to fund new purchases or cash advances.

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Credit Note
Issued by a seller to a purchaser to record the reduction of a bill because of an allowance, return or cancellation. The opposite of an invoice.

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Credit Rating
A formal assessment of an individual's or a corporation's ability to handle credit, based on the history of borrowing and repayment, as well as the availability of assets and the extent of liabilities.

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Current Asset
Unrestricted cash, or any other asset that is expected to be converted into cash or consumed in the production of income within a year.

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Current Liability
Liability expected to be liquidated in a year.

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Debit
An entry recording an increase to an asset or expense or a reduction to a liability, revenue or owner's equity. Debits are recorded in the left-hand column of an account or a two-column book. Opposite of credit.

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Debt
A legal obligation to deliver a product, service or amount of money.

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Debt to Equity Ratio
The ratio that indicates a company's ability to repay outstanding creditors. This also indicates the degree of leveraged money to improve the rate of return for shareholders.

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Deficit
A negative amount of retained earnings caused by cumulative losses and dividend distributions exceeding cumulative net income.

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Deflation
The opposite of inflation. A reduction in the price of goods and services. Possible causes of deflation are a decrease in the supply of money or credit or reduced individual or government spending.

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Demand Loan
A loan repayable upon demand of a creditor.

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Deposit
Funds used as collateral for the delivery of a good, such as a security deposit. It can also refer to the transfer of funds to another party for safekeeping, such as a deposit into a bank account.

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Depreciation
The decrease in value of a fixed asset during its projected life expectancy, or the decrease in value of one currency in relation to another.

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Direct Cost
Costs identified with a specific unit of product. For example, clay in the production of flowerpots or tubing in the production of bicycles are direct costs.

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EBITDA
Earnings Before Interest Taxes, Depreciation and Amortization. A measure of performance which takes out the effects of accounting and finance decisions that might be specific to the entity.
Electronic Funds Transfer System (EFTS)
A process by which funds are electronically transferred between accounts. EFTS allows for direct deposits or withdrawals without processing written checks.

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Employee Stock Ownership Plan (ESOP)
An employer-sponsored program that encourages employees to purchase shares in the company they work for and possibly participate in management.

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Equity
Anything that represents ownership interests, such as stock in a company. Equity can also refer to the difference between an asset's current market value and the debt against it.

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Equity Loan
A loan that allows a homeowner to borrow against the accumulated equity in his or her home.

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Expenditure
Consumption of an asset or payment for an expense.

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Federal Tax Identification Number
A number given to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts.

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Financial Statements
Formal financial reports prepared from accounting records. For example, Profit & Loss Statement, Balance Sheet or Statement of Retained Earnings are all types of financial statements.

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Fiscal Year
A period of one year for which financial statements are prepared that may, or may not, coincide with the calendar year. Any twelve-month period used by a business as its accounting period.

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Franchise
A license that allows a designee to sell and market a company's products or services in a fixed geographic area.

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General Journal
Journal in which transactions are recorded for which specific journals are not provided. For example: adjustments and corrections. In a small operation the general journal may be the only book of original entry.

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General Ledger
All the financial accounts and statements of a business, including debits, credits and balances.

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Gross Income
Gross income is the total of all receipts and gains minus the inventory cost of the business in a given time period. For example, people who use the barter system are required to include whatever they've bartered for as part of their gross income. top
Gross Monthly Income
Total monthly income from all sources before taxes and other expenses.

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Holding Company
A corporation that has no other function except owning other corporations.

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Income Statement
A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The income statement is also known as a profit & loss statement, statement of earnings, statement of income or statement of operations.

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Inflation
The general rise in the prices of goods and services that occurs when demand increases relative to supply.

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Initial Public Offering (IPO)
A company’s first public offering of stock.

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Insolvency
When liabilities exceed assets. Also, the inability to pay debts.

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Intangible Asset
An asset without physical substance that has value due to rights resulting from its ownership and possession. For example, goodwill, patents or trademarks are all intangible assets.

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Intellectual Capital
The financial value that human innovations and intelligence bring to a business enterprise.

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Interest
"Interests" represent a member's ownership of an LLC just as a partner has an interest in a partnership and shareholders own stock in a corporation. Also the cost of using money over time usually expressed as an annual percentage.

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Interest Rate
The cost of borrowed money expressed as a percentage for a given period of time, usually one year.

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Internal Auditor
An employee of an entity, such as a corporation, who audits for management, providing valuable information for decision-making concerning the effective operation of its business.

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Internal Control
A coordinated system of procedures and techniques designed to safeguard a company's assets, to ensure the accuracy of its accounting records and to promote efficiency and adherence to prescribed policies.

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Internal Rate of Return (IRR)
The theorem of compounding interest in reverse, or discounting. IRR is important in planning capital outlays and evaluating rental real estate investments.

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Inventory
Items of tangible property held for sale. An inventory is a detailed list of items and their values owned at a specific point in time. Stock inventory would include raw materials for manufacture, materials partly processed and finished products including items in transit for which title is held, but would not include items physically held for which title belongs to others. Inventories may also be made of fixed assets, stationery and supplies, etc.

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Investment
Funds committed to acquire something tangible or intangible in order to receive a return, either in revenue or use.

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Investment Objective
The financial goal of an investment.

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Invoice
Document for goods purchased or services rendered showing details such as quantities, prices, dates, shipping details, order numbers, terms of sale, etc.

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Journal
A book of original entry in which financial transactions are recorded. For example, a purchase journal is a record of purchase transactions.

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Journal Entry
A transaction log of unique or recurring items. For example, debits and credits would be logged into a journal as journal entries.

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Key Employee
An employee whose skills, knowledge or abilities are crucial to the ongoing operation of the company. This term is used in applying top-heavy tests for qualified referral plans under the Internal Revenue Code Section 416.

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Lease-Purchase Agreement
An agreement where a portion of each lease payment applies to a future purchase of the leased property. Also, applies where the leaseholder has the right to buy the property during or at the conclusion of the lease term.

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Ledger
A book of final entry containing all the accounts of a business or all the accounts of a particular type. Some examples are general ledgers and accounts receivable ledgers.

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Lender
A person or organization that parts with something of value for a stated, or open, duration of time in exchange for specific compensation.

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Letter of Credit
A document by which a bank substitutes its creditworthiness for that of a recipient customer and buyer in a sales transaction.

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Liability
Something for which one is held liable, such as an obligation or debt. Financial liabilities can include loans, mortgages, accounts payable, deferred revenues and accrued expenses, among others.

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Limited Liability Company (LLC)
Also Limited Liability Corporation. A business entity formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs provide limited liability to their members, and are taxed like a partnership, preventing double taxation. LLCs can be formed in every state.

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Limited Partnership
An investment affiliation consisting of a general partner and limited partners. The general partner, in return for fees and a percentage of ownership, manages business operations and is ultimately liable for any debt. Limited partners may receive income, capital gains, and tax benefits in return for their investment, but have little involvement in management.

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Liquid Assets
Cash and short-term investment vehicles. Liquid assets can be things like commercial paper, checking accounts, account receivables and Treasury bills.

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Liquidation Value
The net amount realized on assets in the event of a liquidation.

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Liquidity
The ability to quickly convert assets into cash without significant loss.

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Loss
The excess of expenditures over revenues. The opposite of income or profit.

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Management Accounting
Accounting concerned with providing information to managers who are inside an organization and also direct and control operations. Management Accounting includes cost accumulation for product costing, budgeting and financial statement analysis.

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Management Buyout
When managers or executives of a company buy a controlling interest in their company from existing shareholders. If they pay a premium over the existing fair market value of the outstanding shares, the company then becomes a private corporation without a majority of shares trading on the market.

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Management Fee
A charge against an investor's assets for a fund manager's services.

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Manager
An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to be controlled by mangers this fact must be stated in the articles of organization.

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Market Value
The highest price that an owner could realize in an open market transaction.

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Member
A member is a person who is an owner of a Limited Liability Company. The members make the business decisions of an LLC unless the articles of organization provide that the LLC will be controlled by a manager, or managers.

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Merger
A merger occurs when one corporation is taken over by another.

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Minority Interest
The equity of all shareholders who do not hold a controlling interest in a company.

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Minutes
A written record which details the events of the corporation. These records should be kept in the corporation's record book.

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Net Income
Total revenue minus total costs, expenses and taxes.

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Net Worth
The amount of asset value exceeding total liabilities.

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Notary Public
A public officer who can authenticate signatories on documents and take depositions or oaths, authorized by a particular state or jurisdiction. Banks, insurance agencies, legal offices and government buildings often have notaries public on staff.

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Note Payable (Promissory Note)
Written promise made by one party to another to pay a specific amount on demand or by a definite date.

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Note Receivable
Written promise by one party to make payment to another party at a specified date.

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Offering Price
The per share price at which a stock or mutual fund is offered to the public. The market price may be more or less than the offering price.

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Officers
Officers are people who are appointed by the directors. They manage the daily affairs of the corporation. A corporation's officers usually consist of a president, vice-president, treasurer and secretary. In most states, one person can hold all of these positions.

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Operating Agreement
An agreement among the LLC members, which govern the LLC operations, and the rights of its members. It is analogous to corporate bylaws.

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Option
The right to buy or sell a security at a set price on or before a given date. "Call" options are bets that the security will be worth more than the price set by the option, the strike price, plus the price of the option. "Put" options are bets that the security's price will fall below the price set by the option.

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Options
Marketable securities that provide for future exchange of cash and common shares contingent upon the option owner's choice.

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Ordinary Income
Income derived from normal business activities, such as wages and salary, as opposed to capital gains.

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Organizational Meeting
The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed, such as the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved and a resolution authorizing the opening of bank accounts is passed. If the initial directors are named in the articles of incorporation, they can hold the organizational meeting. If they are not named, then the incorporator holds the organizational meeting.

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Overhead
Fixed costs not directly applicable to the production of a product. For example, costs of lighting and heating a factory.

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Owner’s Equity
What the business is worth to the owner. See Capital and Equity.

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Par Value
The face value of a stock or bond when issued, which may bear little relationship to the security's current market value.

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Parent Company
A corporation that directly or indirectly owns a controlling interest in another corporation. See Subsidiary.

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Partnership
A contractual association between individuals who share in the management and profitability of a business venture.

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Past Due
A payment that has not been received by the end of the lender's grace period. Creditors may assess late fees for past due payments or report the account holder to a credit reporting agency.

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Patent
An official license granted by the Patent Office that gives an individual or business the rights to the production or sale of a specific invention, process, or design for a specified period of time.

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Payable
An obligation to pay a sum at a future date.

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Payroll
A record of wages or salaries paid or payable. The actual wages and salaries paid during a given period.

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Payroll Taxes
There are two main forms of payroll taxes. One is in the form of withholding and the other is paid directly by the employer. In the first case employers deduct a certain amount from employee paychecks to pay for taxes. In the second, employers pay a tax based on the number of employees and how much they are paid. This tax money funds many finance specific programs, including social security, health care and worker's disability.

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Posting
Process whereby transactions are transferred from a journal to a general ledger or subsidiary ledger.

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Prime Rate
A standardized short-term borrowing rate established by the Federal Reserve Board.

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Principal
The original amount of money invested in a security, the face value of a bond, or the remaining amount owed on a loan, separate from interest. "Principal" can also refer to the owner of a private company or the main party in a financial transaction.

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Profit
The excess of total revenue over total expenses for a period of time.

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Profit and Loss Statement
A statement that summarizes a company's revenues, costs and expenses incurred during a specific time period.

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Profit-Sharing Plan
A defined contribution plan to which employers contribute a percentage of the company's profits, usually based on the employee's earnings.

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Proxy
If a shareholder cannot attend a meeting, the shareholder is allowed to vote by proxy. A proxy grants another individual the power to vote on their behalf.

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Quorum
The minimum attendance required to conduct business at a meeting. Usually, a quorum is achieved if a majority of directors are present, for directors meetings, or outstanding shares are represented, for shareholder meetings. The percentage needed for a quorum may be modified in the bylaws.

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Rate of Return
The gain or loss of an investment over a specified period of time, expressed as a percentage of the original investment cost.

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Ratio
Relative size, expressed as the number of times one quantity is contained in another.

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Recapitalization
When a company changes its capital structure by exchanging preferred stock for bonds to reduce taxes or to avoid or emerge from a bankruptcy.

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Receivable
An amount to be received at a future date.

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Redemption
The repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.

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Refinancing
Rescheduling of payments due. Usually resulting in smaller payments over a longer period of time or a lower rate of interest on a loan.

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Retained Earnings
Cumulative net incomes of a corporation less losses and dividend distributions to shareholders, profits not distributed.

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Revenue
Money that a company receives from the sale of goods and services, before expenses and taxes.

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Risk
Possibility that the actual return on an investment will be less than its expected return.

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S Corportion
A small corporation which elects sub-chapter S tax treatment. This tax treatment allows the corporation to avoid federal level taxation. Corporate Profits and Losses are passed through to the shareholders.

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Sales Taxes
A tax collected by a retailer against the retail price of a commodity.

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Schedule
A form a taxpayer uses to itemize specific sources of income or expenses that are claimed as deductions.

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Self Employment Tax
The Social Security tax imposed on self-employed individuals.

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Share
One unit of ownership in a corporation, mutual fund or limited partnership.

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Shareholder
Any holder of one or more shares in a corporation. A shareholder usually has evidence that they are a shareholder. This evidence is represented by a stock certificate.

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Small Business Association (SBA)
A federal organization that provides programs and opportunities to promote the growth and success of small businesses.

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Sole Proprietorship
A business carried on by the owner as an individual. The owner of a sole proprietorship is personally liable for all business debts; thus, personal property could be taken to pay business debts. A sole proprietorship is an unincorporated business wholly owned by one individual.

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State Taxes
There are all kinds of taxes which are used to pay for all sorts of things. Some of our money goes to the federal government, which pays for services like interstate highways, the armed forces, the FBI and a lot more. Your state also needs money for schools, roads and state troopers, to name just a few. At the end of the tax year you will need to send one form to the federal government and another to your state government.

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Statement of Changes in Financial Position
A financial statement showing the impact of operating, financing and investing activities effecting the cash position of the company. Also known as Cash Flow Statement, Statement of Cash Flow, Statement of Operating, Financing and Investing Activities or Statement of Changes in Cash Resources.

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Statement of Earnings
See Income Statement

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Statement of Financial Position
See Balance Sheet

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Statement of Retained Earnings
A financial statement summarizing the changes in retained earnings for a stated period. Also known as Statement of Changes in Capital Accounts or Statement of Changes in Retained Earnings and Reserves.

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Stock
Capital of a corporation that is divided into portions or shares. Stock refers to an equity or ownership interest in a corporation. There may be several classes of stock in a corporation, each class divided into equal portions or shares. Ownership of shares is demonstrated by stock certificates. See Share.

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Stock Certificate
A document substantiating the legal ownership of shares of stock.

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Stock Dividend
A dividend paid by the issuance of shares of capital stock.

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Stock Market
The organized trading of securities in the various market exchanges and the over-the-counter market.

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Stock Option
The right to buy shares of capital stock at a stated price on or by a given date. A privilege often extended to executives or employees of a company.

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Stock Purchase Plan
A mechanism for employees to purchase stock in their company.

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Stock Split
A distribution of additional shares to each holder of a certain stock in proportion to the shares the individual already owns, with each share's par value reduced to maintain the same total equity. For example, if a stock splits 2-for-1 and you own one share with a $100 par value before the split, you would own two shares with a $50 par value after the split.

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Stock Transfer Book
A record book, which lists the owners of shares of stock in a corporation.

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Stockholder
See shareholder

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Subsidiary
A corporation controlled by another corporation that owns, directly or indirectly, an interest sufficient to elect a majority of the board of directors. See Parent Company.

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Tangible Asset
Anything that has a value and physically exists, such as land, machines, equipment or currency.

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Tariff Duty
A tax on imports collected by state custom authorities.

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Trial Balance
The listing and totaling of all balances in a ledger to verify that total debits equal total credits.

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Tax Avoidance
Legal minimization of the impact of taxation.

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Variance
Difference between standard cost and actual cost. Also, the difference between an actual revenue or expense item and the budget for that item, or budget variance.

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Write-off
To transfer an item that was an asset to an expense account. For example, to transfer an uncollectable account receivable to bad debts expense.

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Working Capital
Money that ensures a business's ability to operate on a daily basis.

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Write-off
To transfer an item that was an asset to an expense account. For example, to transfer an uncollectable account receivable to bad debts expense

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Yield
An investment’s annual gain or loss. Yield is generally expressed as a percentage.

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