Category: Financial Terms

Accountability What is accountability? Accountability is the acceptance of responsibility for one’s actions and the willingness to be judged on performance. It applies to individuals, organizations, and institutions and includes not only legal and financial obligations but also ethical conduct, environmental impact, and treatment of stakeholders. How accountability works Accountability relies on transparency, clear ownership,…

Account Statement: Definition, Uses, and Key Points What is an account statement? An account statement is a periodic summary of activity for an account over a specified period (the statement period). Common examples include monthly checking or credit card statements and monthly or quarterly brokerage statements. Statements summarize transactions, balances, fees, and other account details…

Account Number What is a bank account number? A bank account number is a unique string of characters that identifies a specific bank account. It appears on your bank statements and (for checking accounts) as the middle sequence of numbers printed at the bottom of paper checks. The account number, together with the bank’s routing…

Account in Trust Key takeaways * An account in trust is a financial account owned or controlled by a trustee for the benefit of a named beneficiary. * Trustees act as fiduciaries and must manage the account according to the trust terms. * Trust accounts can hold cash, securities, real estate and other assets. *…

Account Balance An account balance is the amount of money or the net value in a financial account at a specific point in time. It reflects all credits and debits posted to that account and can apply to checking and savings accounts, brokerage accounts, credit cards, loans, and utility or billing accounts. Key takeaways An…

Accidental Death Benefits An accidental death benefit (ADB) is an additional insurance payout made to the beneficiary when the insured dies as the result of an accident. It’s commonly sold as a rider to a standard life insurance policy and increases the total death benefit if the insurer determines the death was accidental. Key points…

Accidental Death and Dismemberment (AD&D) Insurance Accidental Death and Dismemberment (AD&D) insurance pays a benefit if an insured person dies or suffers certain severe injuries as the direct result of an accident. It commonly complements a life insurance policy (as a rider) but can also be purchased as standalone coverage. Dismemberment includes loss of limbs,…

Accepting Risk: Definition, How It Works, and Alternatives Accepting risk (or risk acceptance/risk retention) is a deliberate decision by an individual or organization to acknowledge a risk and take no proactive steps to eliminate, transfer, or mitigate it. This strategy is commonly used when the expected cost of dealing with a loss is lower than…

Acceptable Quality Level (AQL): A Concise Guide What is AQL? Acceptable Quality Level (AQL) is a quality-control statistic used in sampling inspections to define the maximum proportion of defective items in a production lot that can be considered acceptable. Defined in ISO 2859-1, AQL represents the “worst tolerable” quality level agreed between buyer and seller….

Acceleration Clause Key takeaways An acceleration clause (or acceleration covenant) allows a lender to demand immediate repayment of an outstanding loan if the borrower breaches specified terms. Common triggers include missed payments, transfer or sale of collateral, or violation of other loan covenants. Acceleration protects lenders from default risk; for borrowers it can lead to…

Accelerated Depreciation Accelerated depreciation refers to any depreciation method that allocates larger expense amounts to an asset’s early years and smaller amounts later in its useful life. These methods contrast with straight-line depreciation, which spreads cost evenly across the asset’s life. Key takeaways Accelerated methods recognize more depreciation expense in the early years of an…

Absorption Rate: What It Is and How to Use It What is absorption rate? The absorption rate measures how quickly homes sell in a market during a specific period. It shows the proportion of available inventory that buyers purchase and helps estimate how long current supply will last. Basic formula Absorption rate (%) = (Number…

Absorption Costing What it is Absorption costing (also called full costing) is a product-costing method that assigns all manufacturing costs—both variable and fixed—to units produced. It includes direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Under generally accepted accounting principles (GAAP), absorption costing is required for external financial reporting. How it works…

Absolute Return Definition Absolute return is the percentage change in an investment’s value over a specified period, measured without reference to any benchmark. It captures the gain or loss an asset or portfolio experiences in absolute terms. Key takeaways Absolute return measures an investment’s standalone performance (positive or negative). It does not compare performance to…

Absolute Advantage Key takeaways * Absolute advantage occurs when a producer can make more of a good with the same inputs, or the same amount with fewer inputs, than others. * It explains gains from specialization and trade when different producers excel at different goods. * Comparative advantage—producing at a lower opportunity cost—is a distinct…

Abnormal Return Definition An abnormal return is the difference between an investment’s realized return and its expected return over a specified period. It indicates whether an asset or portfolio performed unusually well or poorly relative to what was anticipated. Formula: * Abnormal return = Realized return − Expected return Explore More Resources › Read more…

Ability-to-Pay Taxation Overview The ability-to-pay principle holds that taxes should be levied according to an individual’s or entity’s capacity to bear them. Under this philosophy, those with higher incomes and greater wealth contribute a larger share of their earnings in taxes than lower-income taxpayers. Progressive taxation Progressive taxation operationalizes the ability-to-pay idea by applying increasing…

Abenomics Abenomics is the name given to the economic strategy launched by Shinzo Abe after he returned as Japan’s prime minister in 2012. It aimed to revive decades of low growth and persistent deflation through a combination of aggressive monetary easing, fiscal stimulus, and structural reforms. Background Japan’s economic stagnation traces to the asset bubble…

What is AARP? AARP is a nonprofit, nonpartisan organization that advocates for people aged 50 and older. Founded in 1958 by educator Dr. Ethel Percy Andrus as the American Association of Retired Persons, the organization officially rebranded to the acronym AARP in 1999 to reflect that many members continue to work past traditional retirement. Today…

AAA Credit Rating: What It Means and Why It Matters A AAA (or Aaa at Moody’s) credit rating is the highest possible assessment of a bond issuer’s creditworthiness. It signals exceptionally low risk of default and strong financial strength. Major rating agencies that assign these ratings are Standard & Poor’s (S&P), Moody’s, and Fitch. Key…

China A-shares Key takeaways China A-shares are equity shares of mainland China–based companies traded in renminbi (RMB) on the Shanghai and Shenzhen stock exchanges. Historically restricted to domestic investors, A-shares opened to some foreign institutions via the Qualified Foreign Institutional Investor (QFII) framework beginning in the early 2000s. B-shares differ by being quoted in foreign…

A-B Trust What it is An A-B trust (also called a bypass trust or credit shelter trust) is a joint trust created by a married couple to reduce federal estate taxes. When one spouse dies, the original joint trust automatically splits into two parts: – A trust: the survivor’s trust (assets the surviving spouse controls)…

90/10 Investment Strategy Key takeaways Allocate 90% to low-cost stock index funds and 10% to short-term government bonds (e.g., Treasury bills). Popularized by Warren Buffett as a simple, low-maintenance approach for long-term growth. Highly aggressive compared with traditional mixes; better suited to investors with long horizons and high risk tolerance. Keep costs low (choose low-expense…

90-Day Letter: What It Means and How It Works A “90-day letter” is an IRS notice—also called a Notice of Deficiency—informing a taxpayer that the IRS has identified a discrepancy or error in their tax return and proposes an increased tax assessment. The notice gives the taxpayer a fixed period to dispute the proposed assessment;…

8(a) Firm: Meaning, Purpose, Qualifications What is an 8(a) firm? An 8(a) firm is a small business owned and controlled by socially and economically disadvantaged individuals and accepted into the Small Business Administration’s (SBA) 8(a) Business Development Program. The program helps eligible entrepreneurs gain access to government contracting and provides training, mentoring, and other assistance…

83(b) Election Key takeaways An 83(b) election lets you elect to include the fair market value (FMV) of restricted stock or other property in taxable income at the time of transfer (grant) rather than when the property vests. It can convert future appreciation into capital gains (potentially taxed at lower long‑term rates) and start the…

The 80-20 Rule (Pareto Principle) What it is The 80-20 rule, or Pareto Principle, states that roughly 80% of outcomes come from 20% of causes. It’s a heuristic for prioritizing effort: a relatively small subset of inputs—customers, products, tasks, or causes—typically produce the bulk of results. How it works Identify outputs you care about (revenue,…

80-10-10 Mortgage: Meaning, Benefits, Risks, and Example What is an 80-10-10 mortgage? An 80-10-10 mortgage is a two-loan arrangement (a type of piggyback mortgage) that combines: * A first mortgage for 80% of the home’s purchase price (usually a fixed-rate mortgage). * A second mortgage for 10% of the purchase price (often a home equity…

SEC Form 8-K: What It Is and How It Works What is Form 8-K? Form 8-K is a current report that publicly traded companies must file with the U.S. Securities and Exchange Commission (SEC) to disclose unscheduled material events or corporate changes that shareholders should know about. Unlike periodic reports (10-K, 10-Q), Form 8-K is…

60‑Plus Delinquencies: What They Mean and Why They Matter Delinquency means a missed or late payment on a debt such as a credit card, mortgage, auto loan, or student loan. “60‑plus delinquencies” typically refers to accounts that are 60 days or more past due. These accounts are increasingly serious: they harm credit scores, raise the…

529 Savings Plan A 529 plan is a tax-advantaged savings account created to help pay for education costs. Named for Section 529 of the Internal Revenue Code, these state-sponsored plans offer tax-deferred growth and tax-free withdrawals for qualified educational expenses. Over time their allowable uses have expanded beyond college to include K–12 tuition, apprenticeship programs,…

529 Plans A 529 plan is a tax-advantaged savings vehicle created under Section 529 of the Internal Revenue Code to help families pay for education. State-sponsored and administered by the 50 states and the District of Columbia, 529 plans come in two main forms—college savings plans and prepaid tuition plans—and offer tax-deferred growth and tax-free…

52-Week Range What it is The 52-week range is the lowest and highest price at which a security has traded during the prior 52 weeks. It’s commonly shown on stock quote pages and summarized on one line (low — high), but understanding the surrounding price action and trend gives much more context than the two…

52-Week High/Low What it is The 52-week high and low are the highest and lowest prices at which a stock has traded over the past 12 months (based on daily closing prices). Traders and investors use these levels to identify potential resistance (high) and support (low). Key takeaways Acts as a simple, widely followed measure…

What is a 51% attack? A 51% attack happens when an individual or group gains control of more than half of a blockchain network’s validation power (hashing power for proof-of-work or stake in proof-of-stake). With majority control they can: Prevent or delay new transactions from being confirmed. Reverse transactions they previously made, enabling double-spending. Potentially…