ABC Inventory Analysis or Management, ABC Method, ABC Analysis by nrd78674

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AAA, AA, A Ratings bond ratings given by Standard & Poorʼs as well as Moodyʼs.
 These ratings refer to the ﬁnancial stability of the bond issuer. See also Bond
  In General:
         1. to decrease in amount or value.
         2. reduction or rebate on service charges.
  Taxation: a complete or partial cancellation of a levy imposed by a governmental
  Law: a temporary suspension or termination in a lawsuit.
ABC Inventory Analysis or Management, ABC Method, ABC Analysis
  inventory control system that divides the inventory into three classes. A (high
  value), B (medium value), and C (low value) depending on the value and
  importance of the item. It gives the most attention to A inventory, then B, then C.
  The ﬁgure is an illustration of the ABC inventory control system.

Dictionary of Business Terms
Ability to Pay
    Business: a customerʼs ability to make payments to the vendor.
    Banking: a borrowerʼs ﬁnancial ability to service the interest and principal
    requirements of a loan agreement. Normally the ability to pay is determined by
    future earnings prospects. Those having a higher ability to pay would have a
    higher credit rating.
    Labor relations: the ability of an employer to meet a unionʼs ﬁnancial
    Bonds: the source of revenue pledged to service the bonds. In the case of a
    corporate bond, the source of revenue would be the earnings of the corporation.
    In the case of governmental bonds, tax revenues would determine the ability of
    the governmental unit to service the interest and principal needs.
Absenteeism habitual failure of employees to appear, especially for work or other
    regular duty. It also refers to the rate of occurrence of habitual absence from work
    or duty. One formula for computing absenteeism rates, suggested by the U.S.
    Department of Labor, is as follows:
            Number of person days lost through job absence during period x 100
              (Average number of employees) x (Number of work days)

Absolute Advantage
    1. ability to produce a good with fewer resources per unit than that of its trading
    2. an advantage held by a particular company because of patents, ownership
       of natural resources, skills of its people, or some other factor; often called
       absolute cost advantage.
Absolute Value the numerical, or positive, value of a real number without regard
    to its sign; also called numerical value. For example, the absolute value of -4
    (written |-4|) is 4.
Absorption Costing a costing method whereby all manufacturing costs, variable
    and ﬁxed, are treated as product costs, while nonmanufacturing costs (e.g.,
    selling and administrative expenses) are treated as period expenses. Absorption
    costing for inventory valuation is required for external reporting; also called Full
Accelerated Cost Recovery System (ACRS) a system of depreciation for
    tax purposes mandated by the Tax Reform Act of 1986. The type of property
    determines its class. Instead of providing statutory tables, prescribed methods of
    depreciation are assigned to each class of property. For 3,5,7, and 10-year classes,
    the relevant depreciation method is the 200% declining balance method. For 15-
    and 20-year property, the appropriate method is the 150% declining balance
    method switching to the straight-line method when it will yield a larger allowance.
    For residential rental property (27.5 years) and nonresidential real property (31.5
    years), the applicable method is the straight-line method. A taxpayer may make
    an irrevocable election to treat all property in one of the classes under the straight-
    line method. Property is statutorily placed in one of the classes. The purpose of

                                                          Dictionary of Business Terms
  ACRS is to encourage more capital investment by businesses. It permits a faster
  recovery of the assetʼs cost and thus provides larger tax beneﬁts in the earlier
Accelerated Depreciation depreciation system that results in expense recognition
  of greater amounts in the earliest years. The greatest tax beneﬁts from depreciation
  are enjoyed in the earlier years. Accelerated depreciation methods include
  double declining balance, 150% declining balance, sum-of-the-years-digits, and
  others. See also Accelerated Cost Recovery System; Double-Declining-Balance
  Depreciation; Sum-of-the-Yearʼs Digits (SYD) Method.
Accelerator Principle a proposition that net investment in capital goods depends
  upon changes in the level of GDP. If aggregate demand increases, the economy,
  operating at full capacity, will have to undertake additional investment in order to
  produce an increase in GDP.
Acceptable Quality Level (AQL) quality standard that allows for a prespeciﬁed
  number of defects.
Access Code a password containing numbers, characters, or both used to gain
  access to computer systems, internet, or ﬁles.
Access Time the length of time that a data storage device, associated with a
  computer, takes to process and return data from the time of the original request
  for the data. This can occur as fast as seventy nanoseconds in the latest computers.
  A nanosecond is one billionth of a second.
Accidental Death and Dismemberment (AD&D) a type of health insurance
  that pays a lump sum if the insured is accidentally killed in an auto accident or if
  he/she is hit by another car. The policy also pays a portion of the insured amount
  if he/she loses part of his/her body such as a leg, an arm or an eye. It may also pay
  disability income should he/she become totally disabled.
Accommotive Monetary Policy Federal Reserve System policy to increase the
  amount of money available to banks for lending.
  1. a record of the relationship and transactions between an individual and another
     party. The other party may be providing products or services. Examples are an
     individualʼs checking account at a bank and credit account at a retail store.
  2. a record of the changes in an accounting item, such as cash, inventory, or
  1. the liability of a board of directors to shareholders and stakeholders for
     corporate performance and actions of the corporation.
  2. an organization system of delegating responsibility.
Accountant one trained in one or more ﬁelds of accounting. Accountants prepare
  ﬁnancial statements and tax returns, audit ﬁnancial records, and develop ﬁnancial
  plans. A bookkeeper is distinguished from an accountant as one who employs
Dictionary of Business Terms
    lesser professional skills. The bookkeeping function is primarily one of recording
    transactions in the accounting books.
Accounting Equation an expression of the equivalency in dollar amounts of
    assets and liabilities and equity in double-entry accounting, often stated as:
                          Assets = Liabilities + Owners’ Equity.
Accounting Principles Board (APB) former body of AICPA that used to
    determine accounting procedures and principles for the accounting ﬁeld. The
    APB was replaced by the Financial Accounting Standards Board (FASB).
Accounting System a system or procedure that processes ﬁnancial transactions
    to provide scorekeeping, attention-directing, and decision-making information
    to management. Accounting is concerned with these two kinds of management
    information (1) ﬁnancial information, and (2) information generated from the
    processing of transaction data. The system is responsible for the preparation of
    ﬁnancial information and the information obtained from transaction data for the
    purposes of (1) internal reporting to managers for use in planning and controlling
    current and future operations and for nonroutine decision making, as well as
    for (2) external reporting to outside parties such as stockholders, creditors, and
Accounts Payable obligations to pay for goods or services that have been acquired
    on open account from suppliers.
Accounts Receivable amounts due the company on account from customers who
    have bought merchandise or received services.
    1. growth in assets in acquisitions, mergers, multiplication, or internal expansion.
       Examples are aging of wine, nursery stock, and livestock. It increases the
       economic value of an asset, usually due to natural causes.
    2. the process of land build-up because of the gradual accumulation of waterborne
       rock, sand, and soil.
    3. an increase in value derived from an intended accumulation. An example is the
       increased value in a pension fund due to accumulated contributions, income
       from the contributed principal, or both.
    4. adjustment of the difference between the face value of a bond and the price of
       the bond bought at an original discount.
Accrual Accounting recognizing revenue when earned and expenses when
 incurred regardless of when cash is received or paid. This differs from cash basis
 accounting, which records revenues and expenses only when cash is received or
Accrued Expense a ﬁnancial obligation, debt, claim, or potential loss is recorded
 when incurred at the end of the reporting period buy not yet paid; also called
 accrued liability.
Accrued Liability see Accrued Expense.

                                                         Dictionary of Business Terms
Accumulated Depreciation sum of depreciation charges taken to date since its
  date of acquisition on a ﬁxed asset such as plant and equipment.
Accumulated Dividend an unpaid dividend due, typically to owners of
  cumulative preferred shares; also known as cumulative dividends and dividends
  in arrears.
Acid Test a stringent measure of a companyʼs ability to meet current obligations;
  also called Quick Ratio. The ratio is found by dividing the most liquid current
  assets (quick assets) by current liabilities.
  1. the purchase of an item such as an asset or good.
  2. the process of obtaining a controlling interest.
  3. takeover of one business by another business.
Acre a two dimensional land measurement equivalent to: 4.046856E+07 square
  centimeters, 4046.856 square meters, 4.046856E-03 square kilometers, 627,2640
  square inches, 43, 560 square feet, 4,840 square yards, .0015625 square miles,
  or 10 square chains. For example, a survey of Smithʼs property shows that it is
  5.2018 acres of land.
Across the Board including all, or almost, all, of everything within a group or
  category. Examples are all employees receiving the same percentage raise from
  the employer, or almost all stocks rising in price on the same day.
Act of God an unpreventable action occurring without the intervention of man.
  Acts of God are normally associated with violent natural occurrences such as
  droughts, earthquakes, ﬂoods, hurricanes, lightning, monsoons, pestilence,
  tornadoes, and wind storms. An Act of God is a physical occurrence, usually
  accidental in nature, and is an outcome of the natural universe having no
  relationship to the actions of man. For example, an individual ﬁles an insurance
  claim to indemnify the damages caused to his roof by the effects of a hurricane,
  which was an Act of God.
  Legal: a suit brought before a court of law, in the form of a complaint, demanding
  from another party a legal right. It has all the procedures accompanying any
  judicial action including court adjudication and its enforcement or denial.
  Real estate: a procedure brought before the court to repossess or regain speciﬁc
  properties or hereditaments. There are two basic types of real actions. Those
  based upon the right of property are termed droitural and those based upon the
  right of possession are termed possessory.
Active Financial Planning Software new-breed, Web-enabled software that
  includes applications and the new level of functionality that combine budgeting,
  forecasting analytics, business intelligence, and collaboration.
Activity Analysis the process of identifying, describing, and evaluating the
  activities an organization performs.

Dictionary of Business Terms
Activity-Based Costing (ABC) system that accumulates costs on the basis of
    production or service activities at a ﬁrm. Basically it assigns costs by activity and
    links them to speciﬁc products
Activity-Based Management (ABM) a systemwide, integrated approach that
    focuses managementʼs attention on activities with the objectives of improving
    customer value and the proﬁt achieved by providing this value. Activity-
    based costing (ABC) is the major source of information for activity-based
Actual Cash Value (ACV) the replacement cost of an item less accumulated
Actuarial Equivalent a mathematical equivalent, such as a lump-sum distribution
    from a pension plan that is equivalent to an annuity distribution. It is equivalent
    because the present value of both are identical.
Actuary the expert involved in mathematical computations and analyses of risks
    and premiums for insurance considering probability estimates.
ADB see Asian Development Bank.
Add-On Loan
    1. a second loan taken out for a larger amount before the ﬁrst loan is repaid.
       Taking out add-on loans is called ﬂipping. For example, assume that oneʼs
       original loan of $10,000 has been repaid down to $5,000. He/she may decide to
       reﬁnance the debt balance of $5,000 and borrow an additional $4,000 from the
       same lender. It may be a wise decision to increase an existing note at a lower
       interest rate.
    2. a loan in which the interest is added to the original loan balance to determine
       the monthly payments.
Adhesion Contract a legally enforceable standardized contract offered by a
    business for a product or service to consumers essentially on a “take it or leave it”
    basis. Under its terms, the consumer has no opportunity to negotiate the terms or
    conditions of the agreement and can only be satisﬁed by accepting it. An adhesion
    contract puts the consumer at a serious disadvantage. An example would be a real
    estate lease agreement where the terms are non-negotiable.
ADR see American Depository Receipt.
Advertising Agency a ﬁrm specializing in the planning, monitoring, and placing
    of advertising in a variety of media for its client company. The ﬁrm oversees its
    client account to help determine what message the company wants to communicate
    and how, and then implements the strategy through speciﬁc art and layout of
    advertising pages or production of radio, television, and Internet spots.
Advertising Elasticity of Demand the percentage change in the quantity sold
    (or market share) that is associated with a percentage change in the advertising
    expenditures of that product. It is used as a measure of short-run advertising
    effectiveness. This elasticity may be affected by a number of factors such as the
                                                         Dictionary of Business Terms
  stage of the productʼs market development, the extent to which competitors react
  to the ﬁrmʼs advertising, either by further advertising or by increased promotional
  efforts, the importance of other marketing factors (e.g., prices, incomes, tastes,
  etc.), and the quality and quantity of the ﬁrmʼs past and present advertising. See
  also Elasticity of Demand.
Ad Valorem a literal translation is “according to value.” See also Ad Valorem
Ad Valorem Tax taxes imposed on the value of property. The more common
  ad valorem tax is that imposed by states, counties, and cities on real estate. Ad
  valorem taxes can, however, be imposed on personal property.
Advertising-to-Sales Ratio the ratio of advertising expenses to sales (in the same
  period or in one future period). The ratio is of interest to business economists
  and marketing managers when comparing advertising activity to competitors.
  Generally, the advertising-to-sales ratio of companies in the industry is usually
  higher with a lack of price competition.
Adapted Marketing Mix an international marketing strategy for adjusting the
  marketing-mix elements to each international target market, bearing more cost
  but hoping for a larger market share and return.
  1. e-mail address
  2. uniform resource locator (URL)
  3. street address
Adjudication determination of a ﬁnal judgment in a legal action.
Adjustable Life Insurance insurance coverage that may be changed by the
  policyholder as necessary depending upon changing circumstances. The policy
  owner may change the plan of insurance, premiums, and face value. For example,
  the insured may decide for ﬁnancial reasons to modify the time period and amount
  of premiums to be paid.
Adjustable Rate Mortgage (ARM) or, variable or ﬂexible rate mortgage. A
  mortgage where the interest rate is not ﬁxed but changes over the life of the loan.
  ARMs often feature attractive starting interest rates and monthly payments. An
  adjustable rate often uses the basis such as the one-year Treasury bill average,
  three-month certiﬁcate of deposit (CD) rate, 11th District cost of funds, London
  Inter-Bank Offering Rate (LIBOR), or prime rate.
Adjustable-Morgages Indexes Benchmark indexes that determine the rate
  for an adjustable-rate mortgage. When borrowers get this type of mortgage two
  main factors determine how payments will change:
  • The benchmark indexes set by market forces and published by a neutral third
  • The margin—an agreed-upon number of percentage points—added to the index
    to determine your rate.

Dictionary of Business Terms
     Below is a look at some popular indexes for adjustable mortgages and how these
     benchmarks work:
     • 11th District Cost of Funds: This index represents the cost of funds for banks
       in the 11th district of the Federal Home Loan Bank system (Arizona, California,
       and Nevada) The index averages the interest banks pay on money they borrow,
       mostly on customersʼ savings accounts. Anyone who has had an interest-bearing
       savings account knows that those rates are low and move tortoise-like. COFI
       (pronounced “coffee”) lags the overall market and beneﬁts borrowers when
       rates are rising.
     • 12-Month Treasury Average: Average yields of the one-year Treasury bill are
       usually called the “12 MAT” or “12 MTA.” Every month, the U.S. Treasury
       publishes the average yield on a constant-maturity 1-year Treasury bill for the
       This index moves slowly
     • London Interbank Offered Rate Indexes: “LIBOR” (pronounced LIE-bore)
       tracks rates at which London banks pay to borrow one anotherʼs reserves. There
       are various LIBOR maturities. Most common are one-month, six-month and
       12-month. Lenders like LIBOR because it moves quickly.
     • Constant-Maturity Treasury Indexes: These benchmarks follow weekly or
       monthly ﬂuctuations in yields for 1-year Treasury bills. CMT rates move up and
       down rather quickly. Most CMT-indexed mortgages adjust once a year.
Adjusted Capitalized Cost in a lease, capitalized cost reduced by factory
     rebates, a down payment, a capitalized cost reduction, or other amounts; also
     called net capitalized cost. It might also reﬂect amounts added to the capitalized
     cost, such as a loan balance from a trade-in. See also Capitalized Cost.
Adjusted Gross Income (AGI) a federal tax term applying to the difference
     between a tax payerʼs gross income and adjustments to income. These adjustments
     include deductions for IRA and Keogh pension plans, alimony payments, and
     penalty on early withdrawal of savings. AGI is the taxpayerʼs income before
     taking wither the standard deduction or itemized deductions, such as medical
     expenses, state and local taxes, interest expenses, and contributions.
Adjuster an insurance term referring to an employee of an insurance company or
     an outside consultant who ascertains the reason for loss and estimates the amount
     of the insurable loss, if any. The adjuster may decide that the insured is not
     covered under the policy. The insured may retain his or her own representative,
     called a public adjuster.
Administrative Budget a formal and comprehensive ﬁnancial plan through
     which management of an nonproﬁt organization (NPO) may control day-to-day
     affairs and activities.
     1. performer of executive duties of an organization.
     2. court-appointed individual to settle an estate when an executor is not qualiﬁed
        or not available to do so or there is no will and the court has to appoint

                                                           Dictionary of Business Terms
Adverse Possession acquisition of land through prolonged and unauthorized
  occupation under an evident claim or right, in denial or opposition to the title of
  another claimant. Adverse possession is a statue of limitations that prevents a legal
  an adverse occupant during the statutory period. The courts are quite demanding
  of proof before they permit adverse possession. For example, the claimant must
  show proof that he or she has maintained actual, visible, continuous, exclusive,
  hostile, and notorious possession and be publicly claiming ownership to the
Advertising any paid form of nonpersonal communication, by paid announcements
  in the print, broadcast, or electronic media, designed to gain acceptance of the
  advertiserʼs message.
Advertising Agency an independent business organization composed of creative
  and business people who develop, prepare, and place advertising in the media for
  sellers seeking to ﬁnd buyers for their goods and services.
Advertising Triad a group composed of advertisers (who sponsor and pay for
  advertisements), agencies (who create, execute, and place advertisements), and
  media (who deliver advertisements).
Afﬁdavit a statement or declaration in writing, made under an oath before some
  ofﬁcer (such as a notary public) who has the authority to administer the oath or
  afﬁrmation. For example, in the case of afﬁdavit of title, the seller (the afﬁant)
  identiﬁes himself or herself and his or her marital status certifying that since the
  examination of title on the contract date there are no judgments, divorces, or
  bankruptcies, or unrecorded deeds, unpaid repairs or defects of title known to him
  or her and that he or she is in possession of the property.
Afﬁliate a partly or fully owned unit of a multinational company. Afﬁliates include
  wholly owned branches, foreign-incorporated subsidiaries, joint ventures, and
  any other legal foreign operation.
Afﬁrm to conﬁrm, ratify, verify, and accept a transaction that can be canceled.
Afﬁrmative Action federal and state programs prohibiting any form of preferential
  treatment or discrimination based on age, national origin, race, religion, sex or other
  personal characteristics, using devices such as deception and quotas, to prevent
  equal access to employment and other societal opportunities including voting
  and housing. Beginning with several Federal civil rights acts, most particularly
  the Civil Rights Act of 1964, and subsequent state legislation afﬁrmative action
  programs encourage equal opportunities and open access for all.
Age Discrimination in Employment Act (ADEA) the 1967 legislation
  that prohibits job discrimination against people age 40 and older. It prohibits
  discrimination in pay, beneﬁts, and continued employment. ADEA outlaws almost
  all mandatory retirement. It awards double unpaid wages for willful violations,
  and grants a broad set of private lawsuit remedies.

Dictionary of Business Terms
     1. the relationship between two individuals in which one is a PRINCIPAL and the
        other is his or her agent representing the principal in transactions with other
        parties. This relationship arises out of a contract, either expressed or implied,
        acts dealing with a third party.
     2. a governmental unit, such as a department, committee, or council.
     3. the capacity of buying and selling a security or property for a client.
Agency Costs reduction in the value of the organization when an agent (a
     subunit manager) pursues his/her interest to the detriment of the principalʼs (the
     organizationʼs) interest.
Agency for International Development (AID) an agency (
     of the U.S. government founded by President Kennedy in 1961 whose mission is
     to foster social and economic development in the Third World. Its initiatives are
     the following: assisting transition to market-based economies in Eastern Europe;
     establishment of a regulatory framework for securities markets in Indonesia,
     Jordan, and Sri Lanka; road construction and maintenance in Latin America and
     Southern Asia; and agricultural research and farm credits worldwide.
Agency Fund the assets held in a fund under an agency relationship for another
     entity. For example, it consists of resources retained by ABC agency as an agent
     for DEF governmental unit.
Agency Problem the problem that interferes with the implementation of a ﬁrmʼs
     goal of maximization of shareholder wealth. The agency problem is the result of a
     separation of ownership from control (or management). For example, a large ﬁrm
     may be run by professional managers who have little or no ownership position in
     the ﬁrm. As a result of this separation between the decision makers and owners
     (shareholders), managers may make decisions that are not in line with the goal of
     maximization of shareholder wealth. They may attempt to beneﬁt themselves in
     terms of salary and perquisites at the expense of owners. See also Agency Costs.
Agent a person authorized by another, the principal, to perform or transact a service
     involving a third party. An agent generally performs a business-related service
     either for the private or public sector. Agents have three basic characteristics: (1)
     they act on behalf of and are subject to the control of a principal, (2) they are not
     the principal, and (3) they must follow the principalʼs instructions.
     co-agent: agents who share the principalʼs authorization to perform his or her
     best instructions.
     exclusive agent: the only agent permitted to act for the principal in a particular
     territory or matter although the principal may act for himself.
     general agent: one who is authorized to act for a principal in all matters
     concerning a particular nature.
     independent agent: an independent business person contracting with a principal
     to achieve a particular outcome.
     mercantile agent: individuals employed for the sale of goods or merchandise.

                                                         Dictionary of Business Terms
  The two principal classes of mercantile agents are brokers and factors. Factors are
  sometimes referred to as commission agents or commission merchants.
  private agent: an individual acting solely for an individual in the conduct of his
  or her private affairs.
  public agent: a person appointed by a unit of the government or state for the
  purpose of representing the public on matters pertaining to the administration of
  public business affairs.
  real estate agent: an individual primarily engaged in the sale or rent of real
  estate for others. Real estate includes all types of property including vacant land,
  businesses, houses, and apartments.
Aggregate Concentration Ratios ratios that measure the percentage market
  share held by an industryʼs leading ﬁrms. Leading ﬁrm market shares are
  calculated using sales data typically for the top four or top eight ﬁrms in an
  industry. When these ratios are low, competition will be keen; high ratios suggest
  that leading ﬁrms may have the potential for both pricing ﬂexibility and abnormal
  (or excess) proﬁts. Concentration ratios are published periodically in the Census
  of Manufacturers.
Aggregate Demand/Supply an economic term for the total goods and services
  supplied to the market at alternative price levels in a given period of time; also
  referred to as total output. Aggregate demand is the total amount of goods
  and services demanded in the economy at alternative income levels in a given
  period including both consumer and producerʼs goods, also referred to as total
Aggressive Growth Fund or, Maximum Capital Gain, Capital Appreciation, or
  Small-Company Growth Fund. A type of mutual fund taking greater risk in order
  to yield maximum appreciation (instead of current dividend income). It typically
  invests in the stocks of upstart, and high-tech oriented companies. Return can be
  great but so can risk. Aggressive investment strategies include leverage purchases,
  options, short sales, and even the purchase of high-risk stock.
Aggregate Production Planning establishment of aggregate production and
  inventory levels over a medium range time horizon. There are two types: level
  plan and chase plan.
  Level Plan aggregate production plan that maintains a uniform output rate.
  Chase Plan aggregate production plan that adjusts capacity in response to
  seasonal demand.
Aging Schedule a list of outstanding accounts receivable, usually grouped by
  length of time payments are overdue.
Agreement of Sale a written agreement between seller and purchaser in which
  the purchaser agrees to buy certain property and the seller agrees to sell them
  upon terms of the agreement; also called offer and acceptance, contract of sale,
  or earnest money contract. Example: Jeannetteʼs broker prepared an agreement
  of sale to sell a home to David. Both principals signed it. The agreement states
  that the price of $100,000 is to be paid in cash at closing, subject to Davidʼs
  ability to arrange an $80,000 loan at a 10% interest rate.

Dictionary of Business Terms
AICPA see American Institute of Certiﬁed Public Accountants.
AID see Agency for International Development.
Air Rights rights to the use of open air space over property, including commercial
     aircraft ﬂight paths, the erection of signs, buildings, railroad rights of way, and
     the rights to preserve an open view by preventing the building of obstructions.
     Condominium owners retain the air space within their individual units.
Airway Bill a document corresponding to the bill of lading in land surface transport
     or of a marine bill of lading in water transport. It is used for goods shipped by air
     (air transport).
A.K.A. “also known as.” In a contract or other document, an individual may be
     referred to as AKA. For example, a married woman may customarily use her
     maiden name interchangeably. Therefore, a contract stipulates her maiden name
     as AKA.
Algorithm a step-by-step, reiterative mathematical or problem-solving
All Inclusive Trust Deed (AITD) see Wraparound Mortgage (Trust Deed).
All Risk/All Peril Policy a feature in a property insurance policy that covers
     each and every loss except for those speciﬁcally excluded by the policy. This is
     the broadest type of insurance that can be bought. For example, if an insurance
     policy does not speciﬁcally exclude losses from ﬂood damage, the insured is
     covered automatically for such losses.
Alliance The collaboration of two or more companies to provide a wider range
     of products or services to customers than anyone can offer separately. See also
     Strategic Alliance.
Allocation to spread costs systematically to different objects such as products,
     accounts, services, departments, and the like.
Allotment the part of an appropriation that may be encumbered or expended
     during an allotment period, which is usually a period of time less than one ﬁscal
     year. Bi-monthly and quarterly allotment periods are most common.
     1. the number of withholding allowances on the W-4 form. A company computes
        how much taxes to withhold from your paycheck based on this number.
     2. promotional money paid by manufacturers to retailers in return for an agreement
        to feature the manufactureʼs products in some way
Alpha the excess return that the portfolio manager is able to earn above an
     unmanaged portfolio (or market portfolio) that has the same risk. In the context of
     a mutual fund, an alpha value is the value representing the difference between the
     return on a fund and a point on the market line, where the market line describes
     the relationship between excess returns and the portfolio beta. Alpha = beta x
     (market return–risk-free return)

                                                           Dictionary of Business Terms
  Morningstar Inc. (800) 876-5005 offers alpha values of major funds, as does its
  website at
  Example 1: If the market return is 8% and the risk-free rate (such as a rate on a
  T-bill) is 5%, the market excess return equals 3%. A portfolio with a beta of 1
  should expect to earn the market rate of excess returns, or alpha, equal to 3% (1
  x 3%). A fund with a beta of 1.5 should provide excess returns of 4.5% (1.5 x
  3%). Alpha value is used to evaluate the performance of mutual funds. Generally,
  a positive alpha (excess return) indicates superior performance while a negative
  value leads to the opposite conclusion.
  Example 2: The fund in Example 1 has a beta of 1.5, which indicates an expected
  excess return of 4.5% along the market line. Assume that the fund had an actual
  excess return of only 4.1%. That means the fund has a negative alpha of .4%
  (4.1% - 4.5%). The fundʼs performance is therefore inferior to that of the market.
  The following presents alphas for some selected mutual funds:
                       Alphas For Some Selected Mutual Funds

                  Company                     Ticker Symbol             Alpha
   Harbor International                          HAINX                   2.18
   Fidelity Overseas                             FOSFX                  -3.58
   Templeton International A                     TEGEX                  -1.35
   Vanguard International Growth                 VWIGX                  -0.89

  Source: MSN Money Central Investor (
  partsub/funds/portfolio.asp), February, 2006.
  Note: A fundʼs alpha is only reliable when its R-squared is relatively high.
Alphanumeric consisting of both characters and numbers.
Alternative Minimum Tax (AMT) an IRS mechanism created to ensure that
  minimum amount of tax, regardless of deductions, credits, or exemptions. It
  operates by adding certain tax-preference items back into adjusted gross income.
  It is taxed based in part on the taxpayerʼs tax preferences that levied when it
  exceeds the regular tax. The idea behind the AMT is that everyone should pay a
  fair share of taxes.
Alternative Mortgage Instrument (AMI) an alternative mortgage that is
  different from a standard ﬁxed-rate, level-payment mortgage.
Alternative Work Arrangements work schedules that are given to employees
  that are not the typical “9 A.M. to 5 P.M.” schedules.
Amended Tax Return changes in income, deductions, or credits that must
  be made to an individual tax return, Form 1040, after it has been ﬁled. Form
  1040X, Amended U.S. Individual Income Tax Return, must be used to report
  these changes. The amended tax return must be ﬁled within three years after the
  date the original return was ﬁled, or within two years after the date the tax was

Dictionary of Business Terms
     paid, whichever is greater. A return ﬁled early is considered ﬁled on the date it
     was due.
America Online the largest commercial online service or Internet Service
     Provider (ISP).
American Accounting Association (AAA) ( organization
     primarily of accounting academicians emphasizing the development of a
     theoretical foundation for accounting. Its research with respect to education
     and theory is distributed through committee report and a quarterly journal, The
     Accounting Review.
American Depository Receipt (ADR) a certiﬁcate of ownership, issued by
     a U.S. bank, representing a claim on underlying foreign stocks. ADRs let U.S.
     residents buy and sell foreign stocks without the hassle of actually owning them.
     Banks issue ADRs, not the corporationʼs stock certiﬁcate, to an American investor
     who buys shares of that corporation. The stock certiﬁcate is kept at the bank. The
     Bank of New York maintains indexes of how ADRS listed in the United States
     perform. This information can be retrieved at the Bank of New York Internet site
     ( J.P.Morgan also maintains an Internet site providing ADR
     market performance ( The Bank of New York and Stock City (www. provide the name, exchange and Ticker
     Symbol for ADRs. You can download The Complete Depository Receipt (DR)
     Directory from the Bank of New York Website (see Figure 1)
                                      Figure 1
                             The Bank Of New York Website

     See also The Bank Of New York Adr Indexes.
American Federation of Labor-Congress of Industrial Organizations
 (AFL-CIO) American federation of autonomous labor unions formed in 1955
     AFL-CIO is the voluntary federation of Americaʼs labor unions, representing
     more than 13 million working women and men.
                                                         Dictionary of Business Terms
American Institute of Certiﬁed Public Accountants (AICPA) the
  professional association of Certiﬁed Public Accountants (CPAs). It is a group
  of accountants who issue pronouncements that make up Generally Accepted
  Accounting Principles (GAAP). The AICPA also issues Statements on Auditing
  Standards, which set forth the requirements to be followed by independent CPAs
  when conducting audits of their clientsʼ ﬁnancial statements.
American Management Association (AMA) ( an association
  of executives, managers, and supervisors in industry, commerce, government, and
  nonproﬁt organizations. It is a global not-for-proﬁt, membership-based association
  that provides a full range of management development and educational services
  to individuals, companies and government agencies worldwide, including 486
  of the Fortune 500 companies. Each year, thousands of business professionals
  acquire the latest business know-how, valuable insights and increased conﬁdence
  at AMA seminars, conferences, current issues forums and brieﬁngs, as well as
  through AMA books and publications, research and print and online self-study
American Marketing Association (AMA) ( an
  international professional organization for people involved in the practice, study
  and teaching of marketing. Its principal roles are (1) to always understand and
  that will help them be better marketers, (2) to empower marketers through
  information, education, (3) provide relationships and resources that will enrich
  their professional development and careers, and (4) to advance the thought,
  application and ethical practice of marketing.
American Production and Inventory Control Society (APICS) (www. an international, not-for-proﬁt organization serving the manufacturing,
  materials management, resource management, and service industries. Established
  in 1957, American Production and Inventory Control Society (APICS) is designed
  to meet the needs of professionals in all areas of resource management, including
  inventory, materials, information systems, accounting/ﬁnance, supply chain, and
  all other functional areas that contribute to the overall efﬁciency and productivity
  of an organization.
American Society of Real Estate Counselors (ASREC) founded in 1953
  and located in Chicago, IL, ASREC has 850 members. ASREC is a society of real
  estate professionals providing a counseling service on real estate purchase and
  investment decisions through a negotiated fee rather than charging a commission.
  Members have the CRE (Counselor of Real Estate) title. The society maintains
  a speakerʼs bureau and conducts educational campaigns. It publishes a directory
  and the semiannual Real Estate Issues.
American Stock Exchange (AMEX) the second-oldest stock exchange in the
  United States and was founded in 1842.
American Terms foreign exchange quotations for the U.S. dollar, expressed as
  the number of U.S. dollars per unit of non-U.S. currency.

Dictionary of Business Terms
Americans with Disabilities Act (ADA) the 1990 legislation that forbids
     employment discrimination against qualiﬁed individuals with mental or physical
     impairments limiting a major life activity (e.g., blindness, cancer, AIDS, and
     learning disabilities), records of such impairments, or perception—albeit false—
     of such impairments.
     1. payment of a loan on an installment basis. The term is usually associated with a
        mortgage payment schedule. As a loan is amortized, the equity in the associated
        property is increased. However, in the early years of a mortgage, the majority
        of the payments are for interest rather than principal.
     2. to write off gradually and systematically over time. For instance, a CPA
        amortizes the cost of an asset through depreciation.
Amortized Loan a loan paid off in periodic equal installments and includes
     varying portions of principal and interest during its term. Examples include
     mortgage loans and most commercial loans.
Amount of $1 The decimal ratio of the future value of an accumulation at compound
     interest to each dollar of the original sum. The future value (compound amount)
     and present value tables are available for the amount of $1. Also available are the
     future value and present value tables for an annuity of $1.
Analog representation of data in a form other than digits as opposed to binary
     digital that represents the same information with switches that are either on (1)
     or off (0). Analog transmission uses analog representation by analog signals. For
     example, a telephone conversation can be transmitted in analog representation
     and use analog transmission.
Analyst a research analyst that has expertise in assessing and analyzing investments,
     and typically is employed by investment banks, brokerage ﬁrms, investment
     advisors, or mutual fund companies; also called a ﬁnancial analyst or security
     analyst. They make buy, sell and hold recommendations on securities. Most
     specialize in speciﬁc sectors in the economy or speciﬁc countries to allow for
     more thorough research. An analyst will often be a key component in selecting an
     underwriter since analyst coverage of the company after the public offering helps
     to generate interest in the companyʼs securities.
Analystsʼ Estimates Forecasts by investment analysts at securities companies and
     banks of the future ﬁnancial performance of companies, in particular forthcoming
     earnings reports. Consensus estimates are compiled by such organizations as
     Multex Global Estimates.
     1. a person or entity that provides ﬁnancing to companies that have progressed
        beyond the start-up phase but are not yet ready for venture ﬁnancing.
     2. a bond of an investment grade.
     3. an opposite of a fallen angel.
Annual Beneﬁt Statement an annual statement detailing all beneﬁts received
     for the entire year.
                                                         Dictionary of Business Terms
Annual Debt Service the required total annual interest and principal loan
  payments. For example, the monthly payments on a 30 year $94,999.75 mortgage
  are $869.00. The ﬁrst yearʼs total interest payment is $9,952.52 and the total
  principal payment is $475.48 for a total annual debt service of $10,428.
Annual (General) Meeting AGM for short, a company gathering, usually held
  at the end of each ﬁscal year, at which shareholders and management discuss
  the previous year and the outlook for the future. Directors are elected and other
  shareholder concerns are addressed.
Annual Percentage Rate (APR)
  1. a true measure of the effective cost of credit. It is the ratio of the ﬁnance
     charge to the average amount of credit in use during the life of the loan, and is
     expressed as a percentage rate per year.
  2. a true measure of the effective annual rate of return on investments. Different
     types of investments use different compounding periods. For example, most
     bonds pay interest semiannually. Some banks pay interest quarterly. If an
     investor wishes to compare investments with different compounding periods,
     he needs to put them on a common basis. The annual percentage rate (APR), or
     effective annual rate, is used for this purpose and is computed as follows:
                                APR =(1 + r/m)m - 1.0
                    where r = the stated, nominal or quoted rate
                        m = the number of compounding periods per year.
  Example: Assume that a bank offers 6 percent interest, compounded quarterly,
  then the APR is:
  (1 + .06/4)4 - 1.0 = (1.015)4 - 1.0 = 1.0614 - 1.0 = .0614 = .0614 = 6.14%
  This means that if one bank offered 6 percent with quarterly compounding, while
  another offered 6.14 percent with annual compounding, they would both be
  paying the same effective rate of interest.
Annual Report evaluation prepared by companies at the end of the reporting
  year, which might be either on a calendar or ﬁscal basis. Contained in the annual
  report are the companyʼs ﬁnancial statements including footnotes, supplementary
  schedules, management discussion and analysis of earnings, presidentʼs letter,
  helpful in evaluating the entityʼs ﬁnancial position and operating performance. The
  regulatory bodies, and other interested ﬁnancial statement users. See also 10-Q;
Annualized Returns investment returns converted to an annual (yearly) basis.
  For example, a fund returning 0.5% a month returns 6% on an annualized (yearly)
  basis. Most mutual funds must show average annual returns for one, three, ﬁve,
  and 10 year periods (when applicable).
Annuitant one who receives or is qualiﬁed to receive the beneﬁts of an annuity.
  1. a series of equal payments or receipts. With an ordinary annuity, payments or
Dictionary of Business Terms
        receipts are at the end of the year. With an annuity due, payments or receipts
        are at the beginning of the year.
     2. in retirement planning, a savings account with an insurance company or
        other investment company. The annuitant makes either a lump-sum deposit
        or periodic payments to the company and at retirement, he/she “annuitizes”-
        receives regular payments for a speciﬁed time period (usually a certain number
        of years or for the rest of his/her life). All of the payments build up tax-free and
        are only taxed when withdrawn at retirement, a time when he/she is usually in a
        lower tax bracket. Although mostly sold by life insurance companies, annuities
        are really the opposite of life insurance: annuities pay off at retirement; life
        insurance pays off at death.
Anti a preﬁx having several different uses and meanings:
     1. opposed or against something as in antitrust or antisemitism.
     2. opposite as in anticyclical or anticlimax.
     3. imputing strife as in antiking or anti manifesto.
     4. neutralizing or restorative as in anticorrosive, or anti-friction.
Anticipatory Breach breach of contract committed prior to the time of required
Antidumping Law statute that sets a minimum price on an import. If the import
     enters the country at a price below the minimum, the law prompts a government
     probe of possible dumping.
Antitrust Laws government laws designed to improve market efﬁciency,
     encourage competition, and curtail unfair trade practices, by reducing barriers to
     entry, breaking up monopolies, and preventing conspiracies to restrict production
     or raise prices in the real estate industry. There are three major antitrust laws: the
     Sherman Antitrust Act of 1890, Clayton Antitrust Act of 1914, and Federal Trade
     Commission Act of 1914.
Appellate Court a court whose only function is to review cases of lower courts.
APICS see American Production and Inventory Control Society.
Application another term for a type of program.
Application Server server running application programs. It is a network server
     performing applications requested by a client.
Applications Software computer software, including word processing,
     presentation, spreadsheet, database, statistical, and communications applications.
     It performs tasks and solves problems applicable to a managerʼs work.
Applied Economics economic tools and methodology applied to solving real
     economic problems. It utilizes a variety of techniques beyond economics,
     including ﬁnance and decision sciences.
Apportionment the allocation of state or federal aid, district taxes, or other
     monies among nonproﬁt organizations.

                                                          Dictionary of Business Terms
Appropriate Technology the technology—whether advanced, intermediate,
  undeveloped, or whether labor intensive, intermediate, or capital intensive—
  that is most ﬁt for the distribution of the factors of production for the country
  using it. For example, in countries where labor is relatively cheap and abundant,
  appropriate technology would be labor intensive.
Appropriation the authorization of a governmental unit to spend money within
  speciﬁed restrictions such as amount, time period, and objective. There must be
  prior approval for such expenditure through agreements or legislation.
Appraisal an opinion or estimate of the value of an asset. An asset may be a piece
  of property, a collectible or precious metal. In the case of property, for example,
  an appraisal is made for the purposes of (1) allocating the purchase price to the
  of hazard insurance to carry; (3) determining the value at death for estate tax
Appraisal Costs the costs associated with measuring, evaluating, or auditing
  products or services to assure conformance to quality standards and performance
  requirements. These include the costs of incoming and source inspection/test
  of purchased material, in process and ﬁnal inspection/test, product, process, or
  service audits, calibration of measuring and test equipment, and the costs of
  associated supplies and materials.
Appraisal Fee a fee required for a professionally prepared estimate of the value
  of an asset (e.g., property, a collectible, or precious metal) by an independent
Appraisal Institute (, formerly American Institute
  of Real Estate Appraisers (AIREA), an international membership association
  professional credentials, standards of professional practice and ethics consistent
  with the public good.
  1. an increase in the value of an asset. The asset may be real estate or a security.
     For example, an individual sold 100 shares of X companyʼs stock for $105
     per share that he bought 10 years ago for $25 per share. During that time the
     amount of appreciation was $8,000 = ($105 - $25) x 100 shares.
  2. recognition given such as an employer bonus to an employee for good
  3. an increase in the value of a currency.
Appreciation of the Dollar a rise in the foreign exchange value of the dollar
  relative to other currencies; also called strong dollar, strengthening dollar, or
  revaluation of a dollar. The opposite of appreciation is weakening, deteriorating,
  or depreciation of the dollar. Strictly speaking, revaluation refers to a rise in the

Dictionary of Business Terms
     value of a currency that is pegged to gold or to another currency. A strong dollar
     makes Americansʼ cash go further overseas and reduces import prices—generally
     good for U.S. consumers. If the dollar is overvalued, U.S. products are harder to
     sell abroad and at home, where they compete with low-cost imports. This helps
     give the U.S. its huge trade deﬁcit. A weak dollar can restore competitiveness
     to American products by making foreign goods comparatively more expensive.
     But too weak a dollar can spawn inﬂation, ﬁrst through higher import prices
     and then through spiraling prices for all goods. Even worse, a falling dollar
     can drive foreign investors away from U.S. securities, which lose value along
     with the dollar. A strong dollar can be induced by raising U.S. interest rates. The
     ﬁgure below summarizes the impacts of changes in foreign exchange rates on the
     multinational companyʼs products, services, and foreign investments.

                      The Impact Of Changes In Foreign Exchange Rates
                              Weak Currency                Strong Currency
                              (Depreciation/devaluation)   (Appreciation /revaluation)
         Imports              More expensive               Cheaper
         Exports              Cheaper                      More expensive
         Payables             More expensive               Cheaper
         Receivables          Cheaper                      More expensive
         Inﬂation             Fuel inﬂation by making      Low inﬂation
                              imports more costly
         Foreign              Discourage foreign           High interest rates could
         investment           investment. Lower            attract foreign investors.
                              return on investments by
                              international investors.
         The effect           Raising interest rates       Reduced exports could
                              could slow down the          trigger a trade deﬁcit.

     1. a fund, especially public fund, set aside for a speciﬁc business purpose.
     2. a legislative act authorizing the expenditure of a designated amount of public
        funds for a speciﬁc purpose.
Appurtenance; Appurtenant Structures something outside the property itself
     but considered a part of the property and adds to its greater enjoyment, such as the
     right to cross another's land (i.e., easement or right-of-way).
Arbitrator impartial third party used to settle disputes. An arbitrator has become
     very popular in labor disputes in recent years.
Arbitrageur one who engages in arbitrage.
Arbitration a process where a grievance or contract dispute is referred to an
     impartial arbitrator or a panel of arbitrators for the purpose of arriving at a

                                                          Dictionary of Business Terms
  mutually acceptable solution avoiding the necessity of a judicial settlement.
  The arbitrator(s) hear the evidence and arrive at a decision. It is faster and less
  expensive than having a court action.
Arbitrage proﬁting from price differences when the same asset is traded in
  different markets. For example, an arbitrageur simultaneously buys one contract
  of silver in the Chicago market and sells one contract of silver in the New York
  market, locking in a proﬁt since at that moment the price on the two markets is
  different, provided the selling price is higher than the buying price. It is also the
  process of selling overvalued and buying undervalued assets so as to bring about
  an equilibrium where all assets are properly valued.
Arbitrage Pricing Model (APM) a theory that relates stock returns and risk.
  The theory maintains that security returns vary from their expected amounts
  when there are unanticipated changes in basic economic forces. Such forces
  would include unexpected changes in industrial production, inﬂation rates, term
  structure of interest rates, and the difference between interest rates of high- and
  low-risk bonds.
Archive a place or collection containing records, documents, or other materials of
  historical interest. It is often used in the plural.
  1. a long-term storage area, often on magnetic tape, for backup copies of ﬁles or
     for ﬁles that are no longer in active use.
  2. a ﬁle containing one or more ﬁles in compressed format for more efﬁcient
     storage and transfer.
  3. a single ﬁle containing one or (usually) more separate ﬁles plus information to
Arithmetic Mean see Mean.
Arithmetic Progression a sequence in which each term after the ﬁrst is formed
  by adding a constant to the preceding term.
  “1-3-5-7-” is the start of an arithmetic progression.
Armʼs Length Transaction a transaction entered into by unrelated parties, each
  acting in their own best interest. It is assumed that in this type of transaction the
  prices used are the fair market values of the property or services being transferred
  in the transaction.
  1. at the end of a term. For example, interest on mortgage loans is paid at the end
     of a month.
  2. past due payments or other liabilities, such as cumulative preferred stock
     dividends that have been declared but have not been paid following their
     payment dates (common dividends cannot be paid as long as cumulative
     preferred dividends are in arrears).

Dictionary of Business Terms
Articles of Incorporation formal documents prepared by individuals wishing to
     establish a corporation in the United States. They must ﬁle these documents with
     the authorities in the state in which the corporation wishes to reside. One copy is
     returned, after being reviewed, and, together with the Certiﬁcate of Incorporation,
     becomes the corporationʼs charter that formally recognizes the corporation as
     a business entity entitled to begin business operations. Rules governing the
     companyʼs internal management are set forth in its bylaws.
Articles of Partnership a formal document drawn up by partners indicating
     signiﬁcant and important aspects of the partnership. Items included are capital
     contributions, proﬁt and loss ratios, name of the enterprise, duration of relationship,
     and individual duties.
Artiﬁcial Intelligence (AI) the umbrella terminology for several main categories
     of research, which include natural language systems, visual and voice recognition
     systems, robotic systems, and expert systems. Artiﬁcial intelligence generally is
     the attempt to build machines that think, that is the study of mental faculties
     through the use of computational models. A reasoning process is involved with
     self-correction. Signiﬁcant data are evaluated and relevant relationships, such as
     the determination of a warranty reserve, uncovered. The computer learns which
     kind of answers are reasonable and which are not. Artiﬁcial intelligence performs
     complicated strategies that compute the best or worst way to achieve a task or
     avoid an undesirable result. An example of an application is in tax planning
     involving tax shelter options given the clientʼs ﬁnancial position. See also Expert
As If
     1. speculation, most commonly associated with insurance, to demonstrate what
        the underwriting or reinsurance treaty results would have been in prior years
        if a new premium calculation had been in effect. A term referring to loss
     2. to examine what the ﬁnancial results would have been if an alternative course
        of action had been taken.
As Is
     1. a term for secondhand or damaged goods sold without either an express or
        implied warranty by the seller. That is, the buyer shall accept delivery of goods
        in the condition found on inspection before purchase, even if they are defective
        or damaged. The term in effect warns the buyer to inspect the items carefully,
        since the burden of determining their condition falls on him/her.
     2. without guarantee as the condition of real estate.
ASAP as soon as possible.
Asian Development Bank (ADB) a ﬁnancial institution for supporting economic
     development in Asia, created in the late 1960s. Asian Development Bank (ADB)
     operates on similar lines as the World Bank. Member countries range from Iran
     to the United States of America. See also International Monetary Fund (IMF),
     and World Bank.
                                                         Dictionary of Business Terms
Asian Dollars dollar-denominated deposits held in Asian-based banks.
Ask see Asked Price.
Ask Price see Asked Price.
Asked Price also called Offering Price, Ask Price, Asking Price,
  1. the price at which an investment (such as a security, commodity, or real estate)
     is offered for sale. It is usually the lowest price at which one can purchase the
  2. for mutual funds, the current net asset value per share plus sales charges, if
Assembler Language an intermediate-level computer language that is less
  complex to use than a machine language. Assembly languages use abbreviations
  or mnemonic codes to replace 0s and 1s of machine language (A for “add”,
  C for “compare”, and MP for “multiply”). A translator is required to convert
  the assembly language program into machine languages that can be executed
  by the computer. This translator is the assembly program. Every command in
  assembly language has a corresponding command in machine language. The
  assembly language differs among computers and thus these programs are not
  easily transferable to machines of a different type from the one on which they
  were written.
Assessed Value the value established for real estate or other property by a
  government as a basis for levying taxes. For example, an individual receives a
  statement that, in the judgment of the local tax assessor, the individualʼs property
  is worth $50,000. If by law, properties in this jurisdiction are assessed at 80% of
  market value, the individualʼs assessed value then is $40,000 (80% of $50,000)
  and property taxes will be based on this assessed value.
Assessment 1. the process of making an ofﬁcial valuation of property for purposes
  of taxation. 2. the valuation placed upon property as a result of this process. For
  example, an individual owns a parcel of land assessed on the tax roll for $50,000.
  The tax rate is $1.00 per $100 of value. The tax assessment for the land is $500.
Assets economic resources that are owned by an organization and are expected
  to beneﬁt future operations. Assets may have deﬁnite physical form such as
  buildings, machinery, or supplies. On the other hand, some assets exist not in
  physical or tangible form, but in the form of valuable legal claims or rights, such
  as accounts receivables from customers and notes receivables from debtors.
Asset Allocation
  1. apportionment of money invested among different asset classes such as cash,
     stocks, bonds, precious metals, collectibles, commodities, and real estate. The
     way assets are allocated will have an effect on expected return and risk.
  2. apportionment of funds invested in different instruments within a particular
     class. An example is buying stocks within 20 different industry groupings.
     Another example is buying different kinds of stock such as blue chips, growth
     stocks, income stocks, and defensive stocks. Another example is buying
Dictionary of Business Terms
        different kinds of bonds including U.S. bonds, municipal bonds of states and
        cities, and corporate bonds.
     3. a mutual fund manager switching funds among different investment types based
        on changing market conditions. For example, if the fund manager believes
        stocks will rise, he or she will switch from money market funds to stocks. If
        the fund manager believes the U.S. stock market is excessively overvalued, he
        or she may sell U.S. stocks and buy stocks of foreign companies.
Asset Turnover net sales divided by total assets; also called Total Asset Turnover.
     It measures how well assets are being used to generate sales revenue.
Asset-Backed Bond a bond that is secured against a speciﬁc asset of the issuing
     company; also called Mortgage Bond.
Assets economic resources that are owned by an organization and are expected
     as accounts receivables from customers and notes receivables from debtors.
     1. the conveying of any type of property by one party to another. An assignor
        conveys his or her title to property to the assignee. The assignability of property
        relates to it being free of all claims and capable of being exchanged.
     2. transfer of the right to collect wages from the wage earner to the creditor; a
        form of garnishment governed by a statute that provides relief for creditors.
        Before such wage assignment occurs, a judgment must be entered at which
        time the affected individual has the right of reply.
     3. an agreement to transfer monies to a third party. For example, an agreement
        may provide that an insurance company will pay a party other than the insured
        for a reimbursable loss.
     4. the right of a party, the assignor, to allocate the beneﬁts of particular insurance
        policies to a third party, the assignee.
     5. Bankruptcy: in the case of bankruptcy, an assignment of assets can occur where
        all the assets are assigned to the creditors for their disposal.
     6. Stock options: in the event a put or call option is exercised, the Options
        Clearing Corporation will notify the stockbroker that the holderʼs option has
        been exercised and the underlying stock is assigned by the broker.
     7. Stock and bond securities: stocks and registered bonds are commonly assigned
        by simply ﬁlling out and signing the form on the back of the certiﬁcate. It is
        also possible to complete a separate stock or bond assignment certiﬁcate to
        fulﬁll the assignment.

                                                         Dictionary of Business Terms
Assumable Mortgage a mortgage that can be transferred from the seller of a
  property directly to the buyer whereby the buyer continues the payments. The
  buyer takes ownership to real estate encumbered by an existing mortgage and
  1. an agreement or promise made orally or in writing where one party was not
     certiﬁed to perform the work.
  2. a legal action to enforce or recover damages for a breach of such an
Assumption of risk the act of performing certain duties that are deemed to be
  1. a hypothesis constructed in a mathematical or statistical argument.
  2. an obligation taken on by a person who did not obtain it originally, but agrees
     By assuming the loan, rather than taking subject to the loan, the buyer becomes
     personally liable on the debt.
Asterisk (*) a commonly used symbol for multiplication, especially in electronic
Asymmetric Information one partyʼs having more information than the other in
  negotiations or in deal making.
ATAR Model see Awareness-Trial-Availability-Repeat (ATAR) Model
At Risk a term indicating that the money is exposed to the possibility of loss. Thus,
  money invested is at risk. Speculative stocks are an extreme example of “at risk”
At-the-Money the term used when the exercise (strike) price of an option is equal
  or virtually equal to the current market price of the underlying stock.
ATM (Automated Teller Machine) you need an ATM card linked to one or
  more bank accounts to use an ATM. These machines allow you to do many of
  the things like inside a bank, including withdraw money, deposit money, transfer
  funds from one account to another, etc.
  1. a legal term of the writ authorizing the taking of property of rights due to
     a legal action. It is designed to safeguard the property possibly to satisfy a
     judgment in favor of the plaintiff in the action.
  2. a ﬁle enclosed in an electronic mail
Attitude a personʼs consistently favorable or unfavorable evaluations, feelings,
  and tendencies toward an object or ideas.
Attorney term indicating an attorney who has been admitted to practice law in
  his or her respective state and is authorized to perform both civil and criminal

Dictionary of Business Terms
     legal functions for clients. An attorney-at-law can perform the full range of
     legal functions including drafting legal documents, giving legal advice, and
     representing clients before courts, administrative agencies, boards, and other
     entitles. In English law an attorney-at-law is referred to as a solicitor.
Attorney in Fact a power of attorney giving permission for a lawyer to represent
     a client.
Attorney of Record an attorney whose name ofﬁcially appears in permanent
     records of a case or an appeal thereto, or on the appearance docket. It gives public
     notice of the attorney who is handling the case.
     1. a quality or characteristic inherent in or ascribed to someone or something.
     2. a data ﬁleʼs special features.
     1. inspection of the accounting records, books, ﬁnancial statements, and operations
        of a business, governmental unit, or individual by a trained accountant for the
        purpose of verifying the accuracy and completeness of all transactions and
        operations. The accuracy of transactions is tested and samples are veriﬁed
        to determine if generally accepted accounting principles (GAAP) were
     2. an examination of books, vouchers, and records of a taxpayer conducted by
        agents of the IRS.
     Compliance audit: a determination of the ﬁrmʼs compliance with speciﬁed
     organizational rules and regulations.
     Desk audit: a term normally used in connection with civil service procedures
     involving a review of the activities of a particular person ﬁlling a particular position
     to determine whether these activities fulﬁll the job classiﬁcation responsibilities.
     Financial audit: examination of a clientʼs accounting records by an independent
     certiﬁed public accountant to formulate an audit opinion. The auditor must follow
     generally accepted auditing standards. A careful evaluation of the internal control
     structure is necessary.
     Independent audit: an audit performed on an organizationʼs records and
     procedures by an outside accounting ﬁrm.
     Internal audit: investigation of an organizationʼs procedures and operations by
     an internal auditor to assure that they conform to the organizationʼs accounting
     and operating policies.
     Management audit: an evaluation of the efﬁciency and effectiveness of
     Correspondence audit: an audit conducted by the IRS through the use of the mail.
     Normally, the IRS requests veriﬁcation of a particular deduction of exemption
     through the completion of a form or the remittance of copies of records or other
     supporting materials.
     Field audit: an audit by the IRS conducted on the business premises of the
     taxpayer or in the ofﬁce of the attorney or accountant representing the taxpayer.

                                                           Dictionary of Business Terms
Audit Trail
  1. in computers, a series of records or information regarding any additions,
     deletions, or modiﬁcations to the system providing evidence concerning
     transactions. An effective audit trail allows the data to be retrieved and certiﬁed.
     Audit trails will give information regarding the date and time of the transaction,
     who processed it and at which terminal.
  2. in accounting, a sequence of records or documentation that shows the series
     of details back to the origin of the transaction. For example, the audit trail
     of selling expenses can show the account balances back through the journal
     entries and back to paid checks or payments by check. The goal of the audit
     trail is to allow the auditors to substantiate transactions and to capture any
Auditor an accountant who performs an audit of a portion or the entirety of a
  companyʼs books. The auditor may be internal or independent. The independent
  accountant is a certiﬁed public accountant (CPA) in public practice who has
  no ﬁnancial or other interest in the client whose ﬁnancial statements are being
Auditorʼs Opinion, Auditorʼs Report the report by a CPA that the companyʼs
  ﬁnancial statements were examined and the expression of an opinion of the
  fairness of those statements. An unqualiﬁed opinion means the CPA is satisﬁed
  that the companyʼs ﬁnancial statements present fairly its ﬁnancial position and
  results of operations and gives the ﬁnancial manager conﬁdence that the ﬁnancial
  statements are an accurate reﬂection of the companyʼs ﬁnancial health and
  operating performance. However, an auditor can give a qualiﬁed opinion that
  contains phrases such as “except for” or “subject to.”
Authentication mechanism used to ascertain if a user is who he or she purports
  to be.
  1. one possessing power over others, such as a company manager who has the
     right to hire and ﬁre.
  2. one having the right to act, such as an attorney having the right to represent
     clients and make decisions on their behalf.
Auto Sales the number of domestic and foreign cars and trucks that automakers
  have sold. It is used as a sign of consumer conﬁdence; upswings are good news and
  declines are bad news. Auto sales affect millions of workers at manufacturers, parts
  suppliers, and dealers, not to mention the labor force of the related industries.
Automated Teller Machine (ATM) a computerized electronic device allowing
  customers to make speciﬁc transactions by the use of a plastic card that has
  account information recorded on it.
Automatic Extension the routine granting of additional time needed by an
  individual to do something. For example, taxpayers are granted an automatic
  extension of four months for ﬁling tax returns (but not for payment of tax). This

Dictionary of Business Terms
     requires the ﬁling of Form 4868, accompanied by the remaining estimated tax
     payment for the year. The application must be ﬁled by the due date of the return.
Automatic Investment Plan an investment plan that allows you to contribute as
     little as $20 a month. The funds are automatically deducted from your checking/
     savings account or off of your paycheck and invested in a retirement account or
     mutual fund.
Automatic Stabilizer structural features of the economy that automatically
     mitigate recession by helping to create a budget deﬁcit and check inﬂation by
     helping to create a budget surplus, without the need for discretionary ﬁscal or
     monetary action; also called built-in stabilizers or nondiscretionary ﬁscal policy.
     Examples are unemployment insurance payments, farm aid programs, and
     personal and corporate income taxes.
     1. for a set of numbers, the total of all number values divided by the number of
        items in the set; also called arithmetic mean.
     2. a measure of central tendency. Three common measures are the (arithmetic)
        mean, median, and mode.
     3. number used to measure the general behavior of security prices by reﬂecting
        the arithmetic average price behavior of a representative group of securities at
        a given point in time and comparing it with the arithmetic average price of the
        same group at a different time.
Average Age of Inventory the number of days an average inventory item takes
     to sell. Average age of inventory = Cost of goods sold x 365 days. For example,
     assume that average inventory is $47,500 and cost of goods sold is $500,000. The
     average age of inventory is ($47,500/$500,000) x 365 days = 34.8 days.
Average Tax Rate the tax rate applicable to all taxable income; also called
     effective tax rate. It is total tax liability divided by taxable income. See also
     Marginal Tax Rate.
Avoidance rendering null and void, refusing to honor, or avoiding the recognition
     of the terms of a contract. If an individual violates a warranty agreement by not
     servicing at the proper intervals, then a company may render the warranty null
     and void and consider itself exempt from any liability.
Awareness-Trial-Availability-Repeat (ATAR) Model a model that projects
     future sales growth without data. The ATAR model originates from what is called
     diffusion of innovation, explained this way: for a person or a ﬁrm to become a
     regular buyer/user of an innovation, there must ﬁrst be awareness that it exists,
     then there must be a decision to try that innovation, then the person must ﬁnd the
     item available to them, and ﬁnally there must be the type of happiness with it that
     leads to adoption, or repeat usage.
Axis a straight line that intersects with another straight line with right angles at a
     point, the origin, in an xy-coordinate graph. The vertical axis is called the y-axis,
     and the horizontal axis, the x-axis.

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