Business Glossary

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accounts payable — The amount a company owes for goods already received.Not unlike a person’s credit card balance; you’ve got the VCR, but youhaven’t taken the money out of the bank yet.

accounts receivable — The amount a company is owed for goods it sold oncredit.

accrual method of accounting — Used for most corporate financialstatements. Revenues are counted during the time they’re earned, andexpenses are counted during the time they’re incurred. Cash doesn’t need tochange hands to be recorded. This is a fuller way of looking at financialhealth. It’s as if you kept records not just of checks you’d written anddeposits you made, but also of what you owed on your credit cards and whatyou were owed by others. You can feel pretty rich if your checking accountis flush, but if you owe thousands on your credit card and don’t take thatinto account, you can spend yourself into trouble.

allowance for bad debt — The amount of debt a company expects not tocollect. This is subtracted from what the company is owed for goods it soldon credit (accounts receivable), so the balance sheet better reflects thecompany’s true economic health.

arbitration — One method of settling disputes, including union-employerbattles. The parties choose a third party to settle their disagreement.This is called binding arbitration when the parties also agree to abide bythe arbitrator’s decision.

assets — Things a company controls, which usually means it owns theseitems. A car company’s assets would include everything from computers usedby the accounting department, to cars not yet sold, to the factory wherethe autos are made. Items must have value and must have been obtained for ameasurable cost; broken computers that can’t be repaired don’t count, nor does a company’s reputation.

automatic teller machine (ATM) — The machines that let you do your bankingwithout dealing with a person. At ATMs, you can take cash from youraccount, make deposits and move money between accounts. All you need is apassword you key in and an access card.

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balance of trade — An accounting of a country’s exports versus imports.

balance sheet — A reckoning of a company’s financial health at a given time. Lists assets, liabilities and equities.

bankruptcy — A word you don’t want to hear if a company or person owes you a lot of money. The person or company is considered bankrupt if they’re unable to pay their debts. The U.S. Bankruptcy Court tries to sort out the financial troubles and get creditors paid. Companies filing for protection under Chapter 7 of the bankruptcy code are shut down and their assets handed over to the creditors. Under Chapter 11, companies try to rework their debts and stay in business.

binding arbitration — Better really mean it when you use this method of solving a dispute. Warring parties—like a union and employer—agree to argue their cases before a neutral party and accept the outsider’s decision.

board of directors — A group of people chosen by stockholders to watch over a company and its executives, and to set overall corporate policy. Their job is to try to keep the company healthy and ensure stockholders get a good return on their money.

bond — A written promise to repay a loan plus interest, usually more than one year after the bond is issued. Investors buy bonds from a company or government entity, essentially loaning the company or government thatmoney.

buying on margin — For those who don’t have lots of money, but believe that’s what it takes to make a killing on the stock market. Stock buyers purchase stocks with borrowed money, gambling the share price will rise enough to pay off the loan and then some.

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call — An option to buy a certain amount of stock at a specific price during a specific time.

capital — Money needed to start or grow a business. This pool can come from securities offerings and retained earnings.

capital budget — Shows plans for buying long-term assets—machinery and other things you expect to last several years—and estimates the costs of those purchases.

cash flow — Money coming into a company and being paid out by the company. Ideally you’d want to take in at least as much as you pay out. On a personal level, you’re having a cash-flow problem if you can’t make your mortgage payments. You’re not necessarily poor; your house might be worth a lot if sold, but you’re still having cash-flow problems.

cease and desist order — Federal Trade Commission ruling that orders a stop to an unfair business practice.

certificates of deposit (CDs) — Generally considered conservative investments. You purchase the CDs from financial institutions–essentially loaning your money–and they promise to pay you back on a fixed date, usually with interest. You can invest for several months, butlonger investments generally earn higher interest.

Clayton Act — One of the United States’ antitrust laws. This one forbids price discrimination.

closed-end fund — A mutual fund that sells a limited number of shares.

collective bargaining — The process by which labor leaders and management iron out agreements on pay and working conditions.

commercial paper — Short term unsecured debt, with maturity up to 270 days. Banks, corporations and others raise money by issuing commercial paper to investors.

commission broker — A person who does the trades for a stock broker’s clients, receiving a commission for the work. The stock broker places orders with them.

common stock — Regular old stock. Owners of this bottom rung of stocks have a piece of the company and get to vote for the board of directors and on corporate policy. But they have to queue up behind owners of preferred stock both to receive dividends and, usually, to receive assets if a company is liquidated.

consumer price index (CPI) — Measures price changes of common goods and services, including such things as housing and food. What you quote when you’re trying to convince your boss you need a raise to keep up with inflation.

corporation — A business owned by shareholders.

cost of goods sold — How much it cost the seller to make or buy the goods sold. Same as “cost of sales.”

cost-of-living adjustment (COLA) — A type of raise workers can get to reflect the higher cost of consumer goods. Also a sort of corporate hardship pay for employees sent to live and work in expensive places.

coupon — A detachable part of traditional bond certificates. You present these to the issuer to collect your interest payments.

coupon rate — A bond’s annual interest rate, stated as a percentage of what was originally paid for the bond. Gets its name from traditional bond certificates, which have coupons you detach and return to the issuer to collect your interest payments.

cumulative preferred — Preferred stock that is due dividends, even if payments are delayed until the company can afford them. The amount owed builds until the dividends are paid. Owners are entitled to their payments before common-stock owners can collect theirs.

current assets — Cash and assets that are expected to be used, sold or converted to cash in the near future, usually one year. A sporting goods store’s current assets would include the money in the register and its bicycles, as well as short-term insurance policies and marketablesecurities—securities expected to be turned into cash in one year.

current liabilities — These liabilities must be paid in a relatively short time, usually one year. Taxes are one example.