Glossary

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.

A card issued by a bank that can be used to withdraw cash from an automated teller machine or to make purchases at merchant locations. Debit cards deduct funds from the checking or savings account linked to the card when they are used.

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

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.

A term insurance policy with a death benefit that decreases over time. This type of insurance is often used in conjunction with a mortgage or other amortized debt to guarantee payment if the holder dies before it is paid off.

A document that identifies legal ownership of real estate.

An annuity that pays an income or lump sum at a future date.

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

An employer funded and controlled retirement plan that pays a predetermined benefit based on an employee's years of service and salary or wages.

A retirement plan to which an employer contributes a fixed amount or percentage of the employee's salary each year. The employee may be allowed to make individual contributions or choose the investment mix for his or her account.

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.

A loan repayable upon the demand of a creditor.

A person who relies on another for financial support. Taxpayers who support dependents can claim tax exemptions for them.

Gradual using up or consumption of a natural resource.

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.

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.

A financial instrument whose characteristics and value depend on the value of an underlying instrument or asset, such as a commodity, bond, equity or currency. Futures and options are types of derivatives.

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.

The transfer of funds refund directly to a bank account.

The tax-free transfer of money or property from one retirement plan or account to another.

A direct tax cannot be shifted to others, unlike an indirect tax. For example, federal income tax is a direct tax. You are required by law to pay.

Directors are elected by the shareholders. They manage or direct the affairs of the corporation. Typically, the directors make only major business decisions and monitor the activities of the officers.

A policy that provides an income if total disability prevents the insured from working.

A broker who buys and sells securities at lower rates than a full-service broker, and who may offer fewer services.

An individual's income after taxes.

The termination of a corporation's legal existence. Dissolution may be caused in a variety of ways including: failure to file annual reports, failure to pay certain taxes, bankruptcy or voluntary dissolution of the corporation by the shareholders and directors.

An investment strategy that spreads investment risk over a number of industries, market sectors or companies. Gains in one area can offset losses in another.

A distribution of earnings to a shareholder or mutual life insurance policy owner. This distribution is usually in the form of money or stock.

A strategy that invests a fixed dollar amount in securities at set intervals, regardless of market prices. With this approach, an investor buys more shares when prices are low and fewer shares when prices are high, usually resulting in a lower average cost per share.

A corporation is domestic in the state where it was incorporated.

The result of tax laws that cause the same earnings to be taxed twice. For example, C corporations are taxed at the corporate level, and their shareholders also pay taxes on the dividends they receive.

The price-weighted average of 30 actively traded blue-chip stocks on the New York Stock Exchange (NYSE). The DJIA represents 15-20% of the market value of NYSE stocks.