Financial Glossary
Plain-English definitions of 200 stock market, investing, trading, tax and personal finance terms, each with how it works and the terms related to it.
Essential Terms
Accounts Receivable (AR)
Accounts receivable is the money a business is owed by customers for goods or services it has delivered but not yet been paid for, recorded as a current asset on the balance sheet.
Accrual Accounting
Accrual accounting is a method of recording financial transactions when they are earned or incurred, regardless of when the related cash is actually received or paid.
Annuity
A contract, typically sold by an insurer, in which a buyer pays premiums in exchange for regular future payments, often for life or a set period.
Asset Allocation
Asset allocation is the strategy of dividing an investment portfolio among different asset classes, such as stocks, bonds, and cash, to balance risk and return according to goals and time horizon.
Accounts Payable (AP)
Accounts payable is the money a business owes to its suppliers and vendors for goods or services bought on credit, recorded as a short-term liability on its balance sheet.
Adjustable-Rate Mortgage (ARM)
A mortgage whose interest rate starts fixed for an initial period and then resets periodically based on a benchmark index plus a margin, so monthly payments can rise or fall over the loan's life.
401(k) Plan
A 401(k) plan is an employer-sponsored retirement savings account in which employees contribute part of their pay, often with tax advantages and sometimes with employer contributions.
Accredited Investor
An accredited investor is an individual or entity that securities rules deem financially sophisticated enough to buy certain private, unregistered investments, based on income, [[net worth]], or professional credentials.
Annual Percentage Rate (APR)
The annual percentage rate is the yearly cost of borrowing money expressed as a percentage, including interest and certain required fees, which lets borrowers compare loan offers on a common basis.
Accrued Expense
An accrued expense is a cost a business has incurred and must pay, recorded in the accounting period when it arises rather than when the cash actually leaves the company.
Alpha
Alpha is the return an investment earns above what would be expected given its level of market risk, often used to judge whether a manager added value beyond a benchmark.
Annual Report
A yearly report that a public company publishes to describe its business, financial results, risks, and outlook for the year, including audited financial statements.
Active Management
Active management is an investment approach in which a fund manager or investor selects securities and adjusts holdings with the aim of beating a market benchmark, rather than simply tracking one.
Activity-Based Costing (ABC)
Activity-based costing is a method of assigning indirect overhead costs to products or services by tracing them through the activities that consume resources, rather than spreading them evenly.
Form 10-K
A Form 10-K is the comprehensive annual report that U.S. publicly traded companies file with the Securities and Exchange Commission, covering the company's business, finances, and risks for the fiscal year.
Accrued Revenue
Revenue a company has earned by delivering goods or services in a period but has not yet billed or collected in cash, recorded under accrual accounting.
Adjusted Gross Income (AGI)
Adjusted gross income is a U.S. federal tax measure equal to a person's total gross income minus certain allowed adjustments, used to determine eligibility for many deductions and credits.
Agency Costs
Agency costs are the losses and expenses that arise when managers act as agents for owners but do not fully pursue the owners' interests, including monitoring and bonding costs.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is a contra-asset account that estimates how much of a company's accounts receivable may never be collected from customers.
Appraisal
An appraisal is an independent, professional estimate of an asset's value at a specific point in time, most often used for real estate, businesses, and other assets without a readily visible market price.
Arbitrage
Arbitrage is the practice of buying and selling the same or closely related assets in different markets at the same time to profit from a temporary difference in their prices.
Asset-Backed Security (ABS)
An asset-backed security is a debt security whose payments come from a pool of underlying assets, such as loans or receivables, that are bundled together and sold to investors.
Asset-Based Lending (ABL)
Asset-based lending is a form of secured borrowing in which a company receives a loan backed by specific assets, such as accounts receivable and inventory, with the loan amount tied to those assets' value.
Dividend Yield
Dividend yield is the annual dividend paid on a stock expressed as a percentage of its current share price, showing how much cash income an investor receives relative to what the shares cost.
403(b) Plan
A 403(b) plan is a tax-advantaged retirement savings plan offered to employees of public schools, certain nonprofit organizations, and some ministers, funded mainly through payroll deferrals.
501(c)(3) Organization
A U.S. nonprofit organization recognized by the Internal Revenue Service under Section 501(c)(3) of the tax code as exempt from federal income tax, typically for charitable, educational, or religious purposes.
529 Plan
A 529 plan is a tax-advantaged savings account, named after Section 529 of the U.S. Internal Revenue Code, designed to help families save for education expenses.
Absorption Costing
A cost accounting method that assigns all manufacturing costs, both variable and fixed, to products, which remain in inventory until sold and are then expensed as cost of goods sold.
Account Statement
An account statement is a periodic summary issued by a bank, brokerage, or other financial institution that lists an account's balances, transactions, fees, and other activity over a set period.
Accounting Standard
An accounting standard is a formal set of rules and guidelines that tells companies how to record, measure, and report their financial transactions so that financial statements are consistent and comparable.
Acquisition
An acquisition is a transaction in which one company buys a controlling stake in, or all of, another company's shares or assets, gaining ownership and control of that business.
Advance/Decline Line (A/D)
A cumulative running total of the number of advancing stocks minus declining stocks in a market index or exchange, used to gauge the breadth of market movement.
Adverse Selection
Adverse selection is a situation in which one side of a transaction has more private information than the other, so the deal tends to attract the riskier or lower-quality participants.
Agency Problem
The conflict that can arise when one party, the agent, acts on behalf of another, the principal, but has different incentives and may not act in the principal's best interest.
Agent
An agent is a person or organization authorized to act on behalf of another party, called the principal, in financial dealings such as trading, transferring securities, or lending.
Aggregate Demand
Aggregate demand is the total quantity of goods and services that all buyers in an economy are willing to purchase at a given overall price level over a specific period.
Aggregate Supply (AS)
Aggregate supply is the total quantity of goods and services that producers across an economy are willing and able to supply at a given overall price level during a period.
Algorithmic Trading
Algorithmic trading is the use of computer programs that follow predefined rules to place, manage and execute trades in financial markets automatically, often at speeds no human could match.
Amended Return
A revised tax return filed after an original return has been submitted, used to correct errors or omissions in reported income, deductions, or credits.
American Depositary Receipt (ADR)
A negotiable certificate issued by a U.S. bank that represents shares of a foreign company, letting American investors buy and sell those shares in U.S. dollars on U.S. markets.
Amortization Schedule
An amortization schedule is a table that shows, payment by payment, how each loan installment is split between interest and principal, and how the remaining balance falls until it reaches zero.
Amortized Loan
A loan repaid through regular, equal payments over a fixed term, with each payment covering accrued interest and part of the principal, so the balance reaches zero by the end.
Annual Percentage Yield (APY)
Annual Percentage Yield (APY) is the real annual rate of return on a deposit or investment, including the effect of compounding interest over one year.
Annuitant
An annuitant is the person whose life determines the payment schedule of an annuity, and who usually receives the payments, often the same person who bought the contract.
Annuitization
Annuitization is the process of converting an annuity's accumulated value into a stream of regular payments, usually for a set period or the rest of the holder's life.
Asian Development Bank (ADB)
The Asian Development Bank (ADB) is a multilateral development bank, owned by its member countries, that lends money, provides grants, and offers technical advice to support economic development in Asia and the Pacific.
Assessed Value
The value a local government assigns to a property, or other taxable asset, as a basis for calculating property taxes. It is often different from the price the asset would sell for.
Assignment
In options trading, assignment is the notification that an option seller must fulfill the contract, by delivering or buying shares, after the option buyer chooses to exercise.
Definitions are for general education only and are not financial, tax or legal advice.