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c o v e r n e x t p a g e > title : author : publisher : isbn10 | asin : print isbn13 : ebook isbn13 : language : subject publication date : lcc : ddc : subject : cover next page > < previous page page_iii next page > Page iii Dictionary of Business Terms Third Edition Jack P. Friedman, Ph.D., CPA CONTRIBUTING AUTHORS Suzanne S. Barnhill Stephen Hartman Jeffrey Clark Lowell B. Howard Michael Covington Jane Imber John Downes Theodore C. Jones Douglas Downing Bruce Lindeman Stephen H. Gifis Harvey W. Rubin Jordan Elliot Goodman Jae K. Shim Jack C. Harris Joel Siegel J. Manville Harris, Jr. Betsy-Ann Toffler < previous page page_iii next page > < previous page page_iv next page > Page iv Jack P. Friedman, formerly Laguarta Professor of Real Estate at Texas A&M University, is an author and consultant in Dallas, Texas. Copyright 2000 by Barron's Educational Series, Inc. Prior editions 1987, 1994 by Barron's Educational Series, Inc. All rights reserved. No part of this book may be reproduced in any form, by photostat, microfilm, xerography, or any other means, or incorporated into any information retrieval system, electronic or mechanical, without the written permission of the copyright owner. All inquiries should be addressed to: Barron's Educational Series, Inc. 250 Wireless Boulevard Hauppauge, New York 11788 http://www.barronseduc.com Library of Congress Catalog Card No. 99-37266 International Standard Book No. 0-7641-1200-7 Library of Congress Cataloging-in-Publication Data Friedman, Jack P. Dictionary of business terms / Jack P. Friedman ; contributing authors, Suzanne S. Barnhill . . . [et al.].3rd ed. p. cm.(Barron's business guides) ISBN 0-7641-1200-7 1. BusinessDictionaries. 2. FinanceDictionaries. I. Title. II. Title: Business terms. III. Series. HF1001.F78 2000 650'.03dc21 99-37266 CIP PRINTED IN THE UNITED STATES OF AMERICA 9 8 7 6 5 4 3 2 1 < previous page page_iv next page > < previous page page_v next page > Page v CONTENTS Preface and Acknowledgments vi How to Use This Book Effectively viii Terms 1 APPENDIX: Abbreviations and Acronyms 759 < previous page page_v next page > < previous page page_vi next page > Page vi PREFACE AND ACKNOWLEDGMENTS Whether you are majoring in business at a college or graduate school, starting a fresh career in business, venturing into a new enterprise, or just reading a newspaper or writing a business letter, you will find this book to be a valuable reference. In class, at a meeting, or at home you may read or hear a business term that is unfamiliar to you. Sometimes considerable discussion will revolve around that term, and not understanding it will pose an obstacle to participating in the entire conversation. Indeed, you may feel uneasy or ignorant if there is just one term you don't recognize. At that point this book will be indispensable. Keeping a copy of this handy paperback by your side will provide a useful reference and prevent embarrassing moments in a classroom, conference, meeting with a supervisor, or discussion with an investment advisor or financial planner. Whether the term relates to accounting or economics, management or marketing, business law or business statistics, advertising, transportation, finance, insurance, or real estate, you will probably find it here. A concise definition is provided for more than 7,000 terms, and a further explanation of the term or its use is shown to clarify the definition or use of the term. Terms defined here are short enough to be read in a few seconds, but complete enough for the reader to fully grasp meanings and usage. Entries have been listed in strict alphabetical order, as if the entry were one uninterrupted word. Terms that help define particular entries that appear elsewhere in this dictionary are shown in SMALL CAPITALS. Terms that are similar to the one being defined are in italics. The book is designed to make a user feel comfortable with the style right from the start. Its size and design features are intended to maximize use and convenience. Many people were involved in this project. Contributors listed by subject areas include: Accounting and Taxation Joel Siegel Jae K. Shim Jack P. Friedman Advertising and Direct Mail Jane Imber Betsy-Ann Toffler Business Law Lowell B. Howard Communications and Transportation Jack P. Friedman < previous page page_vi next page > < previous page page_vii next page > Page vii Computers and Internet Douglas Downing Michael Covington Suzanne S. Barnhill Economics Bruce Lindeman Finance John Downes Jordan Elliot Goodman Insurance Harvey W. Rubin International Business J. Manville Harris, Jr. Law Stephen H. Gifis Management Stephen Hartman Marketing Stephen Hartman Real Estate Jack C. Harris Jack P. Friedman Statistics Theodore C. Jones Jeffrey Clark Douglas Downing I am also indebted to a number of people for their suggestions and their evaluations of various sections of the word list and the manuscript. They include Austin Lynas, Robert Ambrio, Milton Amsel, Harold Baldauf, Donald Homolka, Robert Frick, and Mark Rush. Suzanne Barnhill, friend and advisor, improved the manuscript in numerous ways. The editorial staff of Barron's Educational Series was essential in producing this book. Their efficiency and professional ethics in publishing were vital to the successful fruition of this project. To my wife Anita and to Eric and Renee: I thank them for their love and encouragement. JACK P. FRIEDMAN GENERAL EDITOR < previous page page_vii next page > < previous page page_viii next page > Page viii HOW TO USE THIS BOOK EFFECTIVELY Alphabetization: All entries are alphabetized by letter rather than by word so that multiple-word terms are treated as single words. For example, OPENING precedes OPEN INTEREST and DIRECTOR follows DIRECT MATERIAL. In some cases, abbreviations or acronyms appear as entries in the main text, usually as a cross-reference to the complete term, in addition to appearing in the Abbreviations and Acronyms section of the Appendix. Where a term has several meanings, alphabetical sequence is used for subheads, except in special instances where clarity dictates a different order. In some entries, the various meanings of the term are presented with simple numerical headings. Abbreviations and Acronyms: A separate list of abbreviations and acronyms follows the Dictionary. It contains shortened versions of terms defined in the book, plus some related business terms. Cross-References: In order to gain a fuller understanding of a term, it will sometimes help to refer to the definition of another term. In these cases the additional term is printed in SMALL CAPITALS. Such cross-references appear in the body of the definition or at the end of the entry (or subentry). Cross-references at the end of an entry (or subentry) may refer to related or contrasting concepts rather than give more information about the concept under discussion. As a rule, a term is printed in small capitals only the first time it appears in an entry. Where an entry is fully defined at another entry, a reference rather than a definition is provided; for example, PUBLIC CARRIER see COMMON CARRIER. Italics: Italic type is generally used to indicate the term itself, when used in an example within the definition, or another term that has a meaning identical or very closely related to that of the entry. Occasionally, italic type is also used to highlight the fact that a word used is a business term and not just a descriptive phrase. Italics are also used for the titles of publications. Parentheses: Parentheses are used in entry titles for three reasons. The first is to indicate that an entry's opposite is such an integral part of the concept that only one discussion is necessary; for example, CAPITAL GAIN (LOSS). The second and more common reason is to indicate that an abbreviation is used with about the same frequency as the term itself; for example, DOING BUSINESS AS (DBA). Finally, information enclosed in parentheses may add to the understanding of the term: BORROWING POWER (OF SECURITIES). Examples, Illustrations, and Tables: The examples in this Dictionary are designed to help readers gain understanding and to help them relate abstract concepts to the real world of business. < previous page page_viii next page > < previous page page_ix next page > Page ix Organizations and Associations: Those that play an active role in the field are included in the Dictionary, along with a brief statement of their mission. They are also listed by initials in Abbreviations and Acronyms. < previous page page_ix next page > < previous page page_1 next page > Page 1 A ABANDONMENT voluntary, intentional surrender of property, or of a right to property, without naming a successor as owner or tenant. The property will generally revert to one holding a prior interest or, in cases where no owner is apparent, to the state. Abandonment does not relieve a person from obligations associated with lease or ownership unless the abandonment is accepted by the entity to which the obligation is owed. ABATEMENT In general: lessening or reduction. Law: either a termination or a temporary suspension of a lawsuit. An abatement of taxes is a tax rebate or decrease. ABC METHOD inventory management method that categorizes items in terms of importance. Thus, more emphasis is placed on higher dollar value items ('A's) than on lesser dollar value items ('B's), while the least important items ('C's) receive the least time and attention. Inventory should be analyzed frequently when using the ABC method. ABILITY TO PAY Finance: borrower's ability to meet principal and interest payments on long-term obligations. Industrial relations: ability of an employer, especially a financial organization, to meet a union's financial demands from operating income. Municipal bonds: issuer's present and future ability to generate enough tax revenue to meet its contractual obligations. Public policy: charging fees or pricing based on the user's income level. Taxation: concept that tax rates should vary with levels of wealth or income; for example, the progressive income tax. ABOVE PAR see PAR VALUE. ABOVE THE LINE in general, amounts on a tax return that are deductible from gross income before arriving at ADJUSTED GROSS INCOME (AGI), such as IRA contributions, half of the self-employment tax, self-employed health insurance deduction, Keogh retirement plan and self-employed SEP deduction, penalty on early withdrawal of savings, and alimony paid. The term is derived from a solid bold line on Form 1040 and 1040A above the line for adjusted gross income. A taxpayer can take deductions above the line and still claim the standard deduction. < previous page page_1 next page > < previous page page_2 next page > Page 2 ABROGATE to annul, repeal, or abolish. This action makes a former rule, order, law, or treaty void or inoperative. ABSENCE RATE, ABSENTEEISM frequency of employees failing to report to work when they are scheduled to do so. An absence rate above 5 percent is considered high. ABSENTEE OWNER owner who does not personally manage or reside at the property owned. ABSOLUTE ADVANTAGE in international economics, capability of one producer to produce a given good using fewer resources than any other producer. Japan produces television sets more efficiently than most other countries and so could be said to have an absolute advantage in this area. ABSOLUTE AUCTION an AUCTION in which the property is sold to the highest bidder regardless of the amount of the winning bid. ABSOLUTE (CELL) REFERENCE in a spreadsheet program, a cell reference that refers to a fixed location that will not change when a formula is copied to another location. In LOTUS 1-2-3 and EXCEL, absolute references are indicated by placing dollar signs before the column and row indicators. Contrast with RELATIVE (CELL) REFERENCE. ABSOLUTE LIABILITY liability without fault; also known as liability without regard to fault or strict liability. Absolute liability is imposed in various states when actions of an individual or business are deemed contrary to public policy, even though an action may not have been intentional or negligent. ABSOLUTE SALE sale whereby the property passes to the buyer upon completion of an agreement between the parties. ABSORB Business: cost not passed on to a customer; also a firm merged into an acquiring company. Cost accounting: indirect manufacturing costs (such as property taxes and insurance), called absorbed costs. Finance: account that has been combined with related accounts in preparing a financial statement and has lost its separate identity. Securities: issue an underwriter has completely sold to the public. ABSORPTION COSTING in COST ACCOUNTING, applying both fixed and variable costs to derive the cost of the unit produced. See also DIRECT COSTING. ABSORPTION RATE estimate of the expected annual sales or new occupancy of a particular type of land use. For example, the demand for new homes in a market area is estimated to be 500 per year. Developer Abel's new subdivision, when completed, is expected to < previous page page_2 next page > < previous page page_3 next page > Page 3 capture 10% of the market. Therefore Abel's subdivision has an expected absorption rate of 50 homes per year (10% of 500 = 50). ABSTENTION act or instance of deliberately refraining from an action or practice. Abstaining from voting generally means a recorded vote, neither for nor against. Abstention from voting is appropriate when one has a conflict of interest, as when a director owns stock in a competing business or one considered as a target for acquisition. ABSTRACT OF RECORD condensed history of a case, taken from the trial court records and prepared for use by the APPELLATE COURT. ABSTRACT OF TITLE short history of TITLE to land, noting all CONVEYANCES, transfers, GRANTS, WILLS and judicial proceedings, and all ENCUMBRANCES and LIENS, together with evidence of satisfaction and any other facts affecting title. ABUSIVE TAX SHELTER TAX SHELTER claiming illegal tax deductions. For example, a limited partnership inflates the value of acquired property beyond its fair market value in order to claim excessive depreciation deductions. If these writeoffs are denied by the IRS, investors must pay severe penalties, interest, and back taxes. ABUT or ABUTTING ADJOINING or meeting. See also ADJACENT. ACCELERATED COST RECOVERY SYSTEM (ACRS) a method of tax depreciation introduced in 1981, modified in 1984. ACRS rules are generally applicable to most tangible personal property placed in service between January 1, 1981 and December 31, 1986. ACRS was replaced by the MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) for assets placed in service after 1986. ACCELERATED DEPRECIATION any one of a number of allowed methods of calculating depreciation that permit greater amounts of deductions in earlier years than are permitted under the straight-line method, which assumes equal depreciation during each year of the asset's life. See also ACCELERATED COST RECOVERYSYSTEM; DECLINING-BALANCE METHOD; SUM-OF-THE-YEARS'-DIGITS (SYD) DEPRECIATION. < previous page page_3 next page > < previous page page_4 next page > Page 4 Figure 1 Accelerated Depreciation ACCELERATION in real estate law: (1) hastening of the time for enjoyment of a remainder interest due to the premature termination of a preceding estate; and (2) process by which, under the terms of a MORTGAGE or similar obligation, an entire debt is to be regarded as due upon the borrower's failure to pay a single installment or to fulfill some other duty. See also ACCELERATION CLAUSE. ACCELERATION CLAUSE loan provision giving the lender the right to declare the entire amount immediately due and payable upon the violation of a specific provision of the loan, such as failure to make payments on time. ACCELERATOR, ACCELERATOR PRINCIPLE proposition that INVESTMENT responds to growth in output. If the rate of growth of output changes, the level of investment will change. The ratio between the change in the rate of growth of output and the change in investment is the accelerator. ACCEPTABLE USE POLICY a formal set of rules governing how a computer NETWORK may be used. For example, this policy bans the transmission of pornographic material on the Internet. See also NETIQUETTE; TERMS OF SERVICE. ACCEPTANCE In general: voluntary act of receiving something or of agreeing to certain terms. Banking: formal procedure whereby the bank on which a check or other NEGOTIABLE INSTRUMENT is drawn promises to honor the DRAFT by paying the payee named on the check. < previous page page_4 next page > < previous page page_5 next page > Page 5 Contract law: consent to the terms of an OFFER, creating a CONTRACT with all terms binding. Real property law: essential to completion of a gift INTER VIVOS. ACCEPTANCE SAMPLING statistical procedure used in quality control. Acceptance sampling involves testing a batch of data to determine if the proportion of units having a particular attribute exceeds a given percentage. The sampling plan involves three determinations: (1) batch size; (2) sample size; and (3) maximum number of defects that can be uncovered before rejection of the entire batch. This technique permits acceptance or rejection of a batch of merchandise or documents under precisely specified circumstances. ACCESS PROVIDER see INTERNET SERVICE PROVIDER. ACCESS RIGHT right of an owner to get to and from his or her property. ACCESS TIME 1. time taken by a computer or automated typewriter to locate data or an instruction word in its memory (storage) and transfer it. 2. time taken to transfer information from a computer or automated typewriter to the location in that device where it will be stored. ACCIDENT AND HEALTH BENEFITS fringe benefits for accidental injury, accidental death, or sickness. Benefits include payment of medical, surgical, and hospital expenses and income payments. An employer is entitled to a deduction for such payments, whereas employees may exclude the benefits from gross income. ACCIDENT INSURANCE coverage for bodily injury and/or death resulting from accidental means (other than natural causes). For example, an insured is critically injured in an accident. Accident insurance can provide income and/or a death benefit if death ensues. ACCOMMODATION ENDORSER, MAKER, or PARTY one who, as a favor to another, signs a NOTE as acceptor, maker, or endorser without receiving compensation or other benefit, and who thus guarantees the debt of the other person. See also COSIGN. ACCOMMODATION PAPER a negotiable instrument signed by a party as maker, drawer, acceptor, or endorser, without receiving value. It has the purpose of enabling another party to obtain money or credit. ACCORD AND SATISFACTION payment of money or other valuable consideration (usually less than the amount owed) in exchange for extinguishment of a debt. There must be an express or implied agreement that accepting the smaller sum discharges the obligation to pay the larger sum. ACCOUNT In general: contractual relationship between a buyer and a seller < previous page page_5 next page > < previous page page_6 next page > Page 6 under which payment is made at a later time. The term open account or charge account is used, depending on whether the relationship is commercial or personal. Banking: relationship under a particular name, usually evidenced by a deposit against which withdrawals can be made. Among them are demand, time, custodial, joint, trustee, corporate, special, and regular accounts. Bookkeeping: assets, liabilities, income, and expenses as represented by individual ledger pages to which debit and credit entries are chronologically posted to record changes in value. Examples are cash, accounts receivable, accrued interest, sales, and officers' salaries. ACCOUNTABILITY framework for justifying management organizational actions, whether they are financial or employment-related. A junior manager is accountable to a senior manager for the completion of an organizational program by a particular date and within budget guidelines. ACCOUNTANCY theory and practice of ACCOUNTING. ACCOUNTANT person who works in the field of accounting; may be an independent accountant, auditor, or one who provides internal accounting services for the employer. See also AUDITOR; CERTIFIED PUBLIC ACCOUNTANT (CPA). ACCOUNTANT'S OPINION statement signed by an independent CERTIFIED PUBLIC ACCOUNTANT describing the scope of the examination of an organization's books and records. Because financial reporting involves considerable discretion, the accountant's opinion is an important assurance to a lender or investor. Major types of opinions are unqualified or clean, qualified, adverse, and disclaimer. ACCOUNTANTS PROFESSIONAL LIABILITY INSURANCE insurance for accountants covering liability lawsuits arising from their professional activities. For example, an investor bases a buying decision on the balance sheet of a company's annual statement. The figures later prove fallacious and not according to GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). The accountant could be found liable for his professional actions, and would be covered by this policy. ACCOUNT BALANCE see BALANCE. ACCOUNT EXECUTIVE Advertising: executive of an ad agency who oversees a particular account and who is the principal coordinator and contact person for the client within the agency. Finance: brokerage firm employee who advises and handles orders for clients and has the legal powers of an AGENT. Every account executive must pass certain tests administered by securities regulatory boards. Also called registered representative. See also BROKER. < previous page page_6 next page > < previous page page_7 next page > Page 7 ACCOUNTING system that provides quantitative information about the finances of a person or business entity. Includes recording, measuring, and describing financial information. ACCOUNTING CHANGE change in: (1)~accounting principles (such as a new depreciation method); (2) accounting estimates (such as a revised projection of doubtful accounts receivable); or (3) the reporting entity (such as a merger of companies). When an accounting change is made, appropriate disclosure is required to explain its justification and financial effect, thereby enabling readers to make appropriate investment and credit judgments. ACCOUNTING CYCLE accounting procedures beginning with an initial entry, such as recording the first sale of the year, and culminating with the closing entries, which are posted after year-end. ACCOUNTING EQUATION formula in which ASSETS must equal the sum of LIABILITIES and OWNERS' EQUITY. ACCOUNTING ERROR inaccurate measurement or representation of an accounting-related item not caused by intentional FRAUD. An error may be due to NEGLIGENCE or may result from the misapplication of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). Errors may take the form of dollar discrepancies or may be compliance errors in employing accounting policies and procedures. ACCOUNTING METHOD method used by a business in keeping its books and records for purposes of computing INCOME and determining TAXABLE INCOME. The term accounting method includes not only the overall method of accounting but also the accounting treatment of any item, such as inventory method or long-term contracts. See also CHANGE IN ACCOUNTING METHOD. ACCOUNTING PERIOD period covered by an income statement, such as January 1 through December 31 of a year; often a quarter, six months, or a year. ACCOUNTING PRINCIPLES, ACCOUNTING STANDARDS those that govern current accounting practices and are used as references to determine application of the appropriate treatment of complex transactions. See also FINANCIAL ACCOUNTING STANDARDS BOARD (FASB). ACCOUNTING PRINCIPLES BOARD (APB) board of the American Institute of Certified Public Accountants (AICPA) that issued (1959-1973) a series of ACCOUNTANT'S OPINIONS constituting much of what is known as GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). See also AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA); FINANCIAL ACCOUNTING STANDARDS BOARD (FASB). ACCOUNTING PROCEDURE accounting method that a company uses to handle routine accounting matters. These procedures may < previous page page_7 next page > < previous page page_8 next page > Page 8 be written in a manual to assist new employees in learning the system. ACCOUNTING RATE OF RETURN method of estimating the RATE OF RETURN from an investment using a straight-line approach (not discounted or compounded). The investment inflows are totaled and the investment costs subtracted to derive the profit. The profit is divided by the number of years invested, then by the investment cost, to estimate an annual rate of return. The method is not as sophisticated as a discounted approach. ACCOUNTING RECORDS all documents and books used in the preparation of financial statements, including general ledger, subsidiary ledgers, sales slips, invoices, and so on. ACCOUNTING SOFTWARE programs used to maintain books of account on computers. The software can be used to record transactions, maintain account balances, and prepare financial statements and reports. Many different accounting software packages exist. ACCOUNTING SYSTEM mechanism within a company that generates its financial information. The system comprises all the people and machines that are involved in accounting information. ACCOUNT NUMBER number assigned to each customer, supplier, lender, or other entity for ease in referring to that party's activity. Account numbers may be coded alphabetically or chronologically by date opened, and may contain coded information referring to credit terms, salesperson, state or county, and so on. ACCOUNTS PAYABLE list of debts currently owed by a person or business. These are debts incurred mainly for the purchase of services, inventory, and supplies. The accounts normally do not include accrued salaries payable, accrued interest payable, or rent payable. This list is kept in the ordinary course of the debtor's business. See also ACCOUNTS RECEIVABLE. ACCOUNTS PAYABLE LEDGER listing of detailed accounts, often in the form of a book with pages devoted to each supplier, that shows how much is owed to each supplier. Each credit transaction involving that supplier is listed. The balance in this ledger should agree with that in the GENERAL LEDGER. ACCOUNTS RECEIVABLE list of money owed on current accounts to a CREDITOR, which is kept in the normal course of the creditor's business and represents unsettled claims and transactions. Accounts receivable normally arise from the sale of a company's products or services to its customers. See also ACCOUNTS PAYABLE. ACCOUNTS RECEIVABLE FINANCING short-term financing whereby accounts receivable serve as collateral for working-capital advances. See also FACTORING. < previous page page_8 next page > < previous page page_9 next page > Page 9 ACCOUNTS RECEIVABLE LEDGER listing of detailed accounts, often in the form of a book with pages devoted to each customer, that shows how much each customer owes. Each transaction that generated a receivable is listed under that customer and a balance by customer is determined. The balance in this ledger should agree with that shown in the GENERAL LEDGER. ACCOUNTS RECEIVABLE TURNOVER ratio obtained by dividing total credit sales by accounts receivable. The ratio indicates how many times the receivables portfolio has been collected during the accounting period. See also ACCOUNTS RECEIVABLE; COLLECTION RATIO. ACCOUNT STATEMENT In general: any record of transactions and their effect on charge- or open-account balances during a specified period. Banking: summary of all checks paid, deposits recorded, and resulting balances during a defined period. Securities: statement summarizing all transactions and showing the status of an account with a broker-dealer firm, including long and short positions. ACCREDITED INVESTOR under Securities and Exchange Commission Regulation D, a wealthy investor who does not count as one of the maximum of 35 people allowed to put money into a PRIVATE LIMITED PARTNERSHIP. Private limited partnerships use accredited investors to raise a larger amount of capital than would be possible if only 35 less wealthy people could contribute. ACCRETION 1. asset growth through internal expansion, acquisition, or such causes as aging of whisky or growth of timber. 2. adjustment of the difference between the price of a bond bought at an original discount and the par value of the bond. ACCRUAL see ACCRUED INTEREST. ACCRUAL BASIS or ACCRUAL METHOD accounting method whereby income and expense items are included in taxable income or expense as they are earned or incurred, even though they may not yet have been received or actually paid in cash. Taxpayers having inventories must use the accrual method. Exceptions to the accrual method for tax purposes include the recognition of bad debts and payments received in advance for services or merchandise. See also CASH BASIS. ACCRUE to include an event on the accounting records regardless of whether any cash changed hands. For example, at the end of a fiscal year a company may accrue its income tax expense for that year, even though the money will not be paid for several months. See also CASH BASIS. < previous page page_9 next page > < previous page page_10 next page > Page 10 ACCRUED DEPRECIATION see ACCUMULATED DEPRECIATION. ACCRUED INTEREST or ACCRUED INCOME interest or other income that has been earned but not paid. ACCRUED LIABILITIES amounts owed but not yet paid; does not necessarily indicate a default or delinquency. ACCRUED TAXES amount of taxes owed, based on income earned or a property value assessment, but not yet paid. ACCUMULATED DEPLETION accumulating CONTRA-ASSET ACCOUNT for a depletable asset, such as a mine. The balance in this account is subtracted from the asset account when shown on the balance sheet, giving rise to the term contra-asset. ACCUMULATED DEPRECIATION in accounting, the amount of DEPRECIATION expense that has been claimed to date. Same as accrued depreciation. See also ADJUSTED BASIS. ACCUMULATED DIVIDEND dividend due, usually to holders of cumulative preferred stock, but not paid. It is carried on the books as a liability until paid. See also CUMULATIVE PREFERRED STOCK. ACCUMULATED EARNINGS (PROFITS) TAX a 39.6% penalty surcharge on earnings retained in a corporation to avoid the higher personal income taxes to which they would be subject if paid out as dividends to the owners. See REASONABLE NEEDS OF BUSINESS. ACID TEST the most severe test of reliability. Since gold resists acids that corrode other metals, the acid test was used for metals purporting to be gold. See QUICK RATIO. ACKNOWLEDGMENT declaration by a person who has signed a document that such signature is a voluntary act, made before a duly authorized person. See also NOTARY PUBLIC. ACQUISITION one company taking over controlling interest in another company. See also MERGER; POOLING OF INTERESTS; TAKEOVER. ACQUISITION COST price and all fees required to obtain a property. For example, XYZ Corp. purchases a property for $90,000 plus $5,000 in CLOSING COSTS (attorney's fees, loan fees, APPRAISAL COSTS, TITLE INSURANCE, and loan DISCOUNT POINTS). XYZ's acquisition cost is $95,000. ACRE measure of land equaling 160 square rods, 10 square chains, 4,840 square yards, 43,560 square feet, or 0.405 hectares. ACREAGE land measured in acres. ACROBAT software from ADOBE SYSTEMS, INC., for creating PDF files. Acrobat Reader permits users to view and print PDF files that they receive from others; it is distributed free from < previous page page_10 next page > < previous page page_11 next page > Page 11 http://www.adobe.com Acrobat Distiller, a commercial product, creates PDF files by 'distilling' (converting) existing PostScript files and by functioning as a printer driver so that any application can 'print' to a PDF file. See also PDF. ACRONYM word or name that is formed by joining the first letters (or the first few letters) of a series of words. For example, DOS is the acronym for Disk Operating System. An acronym is pronounceable, whereas many other abbreviations are not. ACROSS THE BOARD encompassing everything in a certain class or group; movement in the stock market that affects almost all stocks in the same direction. For example, when the market moves up across the board, almost every stock gains in price. An across-the-board pay increase in a company is a raise of a fixed percentage or amount for all employees. ACRS ACCELERATED COST RECOVERY SYSTEM. See also MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS). ACTIVE CORPS OF EXECUTIVES (ACE) association of volunteers, established in 1969 as a supplement to the SERVICE CORPS OF RETIRED EXECUTIVES (SCORE), assisting the small-business community. It is composed of more than 3,500 executives who are still active in the business world but have volunteered their time and talents. ACTIVE DESKTOP a feature introduced by Microsoft in Internet Explorer 4.0 and Windows 98 that permits users to put 'active content' from the Internet on the desktop. Information from Web sites can thus be constantly updated without having to start and run a BROWSER. ACTIVE INCOME in taxation, a category of income that includes salaries, wages, and commissions. PORTFOLIO INCOME (interest and dividends) and PASSIVE INCOME (rental real estate and businesses in which the taxpayer does not materially participate) are excluded. Passive losses generally may not be offset against either active or portfolio income. ACTIVE MARKET heavy volume of trading in a particular market or stock, bond, or commodity. The spread between bid and asked prices is usually narrower in an active market than when trading is quiet. ACTIVE WINDOW in Microsoft Windows, the WINDOW that currently has the focus, that is, the one in which keyboard or mouse actions will be effective. Usually the TITLE BAR of the active window will be a different color from those of other windows. ACTIVIST POLICY government economic policy that uses monetary and/or fiscal policy activities based on economic conditions. < previous page page_11 next page > < previous page page_12 next page > Page 12 ACT OF BANKRUPTCY behavior indicating that a person might be judged as bankrupt. Examples of such behavior include transferring property title to another with the intent to delay or defraud creditors, and admitting that one is bankrupt. ACT OF GOD violent and catastrophic event caused by forces of nature, which could not have been prevented or avoided by foresight or prudence. An act of God that makes performance of a contractual duty impossible may excuse performance of that duty. ACTUAL CASH VALUE theoretical concept of value, sometimes used as a substitute for MARKET VALUE. ACTUAL COST amount paid for an asset; not its market value, insurable value, or retail value. It generally includes freight-in and installation costs, but not interest on the debt to acquire it. ACTUAL DAMAGES losses directly referable to a breach or tortious act; losses that can readily be proven to have been sustained, and for which the injured party should be compensated as a matter of right. ACTUARIAL SCIENCE branch of knowledge dealing with the mathematics of insurance, including probabilities. It is used in ensuring that risks are carefully evaluated, that adequate premiums are charged for risks underwritten, and that adequate provision is made for future payments of benefits. ACTUARY one who calculates insurance and property costs, especially the cost of life insurance risks and insurance premiums. To become an actuary requires passing a set of highly rigorous mathematical examinations. ADA see AMERICANS WITH DISABILITIES ACT (ADA). ADDED-VALUE TAX see VALUE-ADDED TAX. ADDENDUM something added, as an attachment to a CONTRACT. Commonly added addenda in real estate purchase agreements describe financing terms and property INSPECTION requirements. ADDITIONAL FIRST-YEAR DEPRECIATION tax law provision permitting a certain amount of depreciable business personal property purchased each year to be expensed, rather than depreciated, provided not more than $200,000 is purchased in a year. This amount is $19,000 in 1999, $20,000 in 2000, $24,000 in 2001 and 2002, and $25,000 in 2003. The amount is phased out, dollar for dollar, when purchases exceed $200,000 in a year. The expense deduction is limited to the net income the taxpayer earns from the active conduct of all trades or businesses during the year. ADDITIONAL MARK-ON further increase in a retail merchandise price; often done to take advantage of holiday periods or periods of peak demand. < previous page page_12 next page > < previous page page_13 next page > Page 13 ADDITIONAL PAID-IN CAPITAL see CAPITAL CONTRIBUTED IN EXCESS OF PAR VALUE. ADD-ON INTEREST interest that is added to the principal of a loan. The amount of interest for all years is computed on the original amount borrowed, so the stated rate is much lower than the ANNUAL PERCENTAGE RATE (APR), which is required to be disclosed by federal law. ADDRESS BOOK a feature of some E-MAIL applications, and other application software, that stores names, E- MAIL ADDRESSES, and other contact information in an accessible format. ADDRESS (INTERNET) see E-MAIL ADDRESS; IP ADDRESS; UNIFORM RESOURCE LOCATOR. ADEQUACY OF COVERAGE sufficiency of insurance protection to repay the insured in the event of loss. See also UNDERINSURED. ADHESION CONTRACT legally enforceable agreement containing standardized terms, offered by a business to consumers of goods or services. The consumer must accept the standard provisions and does not have the ability to change those terms. Since it is on a take-it-or-leave-it basis, the consumer is unable to bargain with the seller. AD HOC for this particular purpose, an ad hoc committee is one commissioned for a special purpose; an ad hoc attorney is one designated for a particular client in a special situation. AD INFINITUM indefinitely, with no limit on the amount of money or time. An example is a perpetual annuity of payments made by a company to an individual. The individual will receive payments ad infinitum. AD ITEM merchandise that is later added to a sold good, such as an accessory that changes how the original item is used. For instance, the original sale may be a briefcase, which may then involve filling it with a calculator and worksheet pads. ADJACENT nearby, but not necessarily touching. ADJOINING contiguous; attaching; sharing a common border, as in adjoining properties. ADJUDICATION determination of a controversy and pronouncement of judgment. ADJUSTABLE MORTGAGE LOAN (AML) mortgage instrument under which interest rates and payments may be adjusted over the maturity of the loan. See also ADJUSTABLE-RATE MORTGAGE; RENEGOTIATED-RATE MORTGAGE; VARIABLE-RATE MORTGAGE. ADJUSTABLE-RATE MORTGAGE (ARM) mortgage loan that allows the interest rate to be changed at specific intervals over the maturity of the loan. < previous page page_13 next page > < previous page page_14 next page > Page 14 ADJUSTED BASIS or ADJUSTED TAX BASIS original cost or other basis of property, reduced by DEPRECIATION deductions and increased by CAPITAL EXPENDITURES; base amount from which to measure gains and losses for tax purposes. ADJUSTED GROSS INCOME (AGI) intermediate step in calculating taxable income, the amount used for computing deductions based on, or limited by, a percentage of income, such as medical expenses, charitable contributions, and miscellaneous itemized deductions. This amount is determined by subtracting from gross income any business expenses and other deductions=for example, KEOGH PAYMENTS, ALIMONY PAYMENTS, and IRA contributions. Itemized deductions for such items as medical expenses, interest payments, and real estate taxes are deductions from adjusted gross income; they are not subtracted to derive adjusted gross income. ADJUSTED TAX BASIS see ADJUSTED BASIS. ADJUSTER individual employed by a property and casualty insurance company to settle on its behalf claims brought by insureds. The adjuster evaluates the merits of each claim and makes recommendations to the insurance company. See also INDEPENDENT ADJUSTER. ADJUSTING ENTRY JOURNAL ENTRY posted to the ACCOUNTING RECORDS at the end of an accounting period to record a transaction or event that was not properly posted during the accounting period for some reason. ADJUSTMENTS (IN APPRAISAL) dollar value or percentage amounts that, when added to or subtracted from the sales price of a COMPARABLE, provide an indication of the value of a subject property. Adjustments are necessary to compensate for variation in the features of the comparable relative to the subject. ADMINISTER to provide the management actions of planning, directing, budgeting, and implementing necessary to achieve organizational objectives. It is the function of the personnel manager to administer the testing and placement of newly hired personnel in an organization. ADMINISTERED PRICE price of a good that is specified by a governmental or some other nonmarket agency. Wage price controls and rent controls are examples of administered prices. ADMINISTRATIVE EXPENSE often grouped with GENERAL EXPENSE, expenses that are not as easily associated with a specific function as are direct costs of manufacturing and selling. It typically includes expenses of the headquarters office and accounting expenses. ADMINISTRATIVE LAW law relating to the powers and the procedures of governmental bodies other than courts and legislatures. < previous page page_14 next page > < previous page page_15 next page > Page 15 This type of law affects the rights of private persons through investigations, hearings, rule making, and adjudication. ADMINISTRATIVE MANAGEMENT SOCIETY professional management society. It promotes the application of management methods for commerce and industry for the purpose of increasing productivity, lowering costs, and improving quality. It encourages and participates in research while promoting sound employer/employee relations. ADMINISTRATIVE SKILLS wide range of essential organizational and technical skills. These skills include planning, organizing, staffing, scheduling, and computer SOFTWARE skills comprehending WORD PROCESSING, SPREADSHEETS, DATABASES, and TELECOMMUNICATIONS. ADMINISTRATOR 1. performer of executive duties; management. 2. court-appointed individual or bank charged with carrying out the court's decisions with respect to a decedent's estate until it is fully distributed to all claimants. Administrators are appointed when a person dies without having made a will or without having named an EXECUTOR, or when the named executor cannot or will not serve. ADMINISTRATOR'S DEED DEED conveying the property of one who died without a WILL (INTESTATE). ADOBE SYSTEMS, INC. (San Jose, California) the software company that pioneered the PostScript command language for output devices and has now introduced the PORTABLE DOCUMENT FORMAT. Adobe is also a leader in producing high-quality fonts and desktop publishing software, including Adobe Type Manager (ATM), Photoshop, Illustrator, and PageMaker. See also ACROBAT. ADULT one who has attained the age of MAJORITY. AD VALOREM Latin for 'according to value.' An ad valorem tax is assessed on the value of goods or property (e.g., real estate and motor vehicles), not on the quantity, weight, extent, etc. An ad valorem real estate tax may be a deduction from ADJUSTED GROSS INCOME (AGI) for an individual. Example: If the ad valorem tax rate is 1%, the tax would be $1 per $100 of assessed value. ADVANCE in general, to proceed, move ahead; amount paid before it is earned or incurred, such as a cash advance for travel expenses. ADVANCE FUNDED PENSION PLAN retirement plan in which money is currently allocated to fund an employee's pension. ADVERSARY opponent or litigant, as, for example, in a legal controversy or LITIGATION. < previous page page_15 next page > < previous page page_16 next page > Page 16 ADVERSE OPINION ACCOUNTANT'S OPINION concerning financial statements, that the statements are not in conformity with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) and/or that they do not present results fairly. ADVERSE POSSESSION method of acquiring legal TITLE to land through actual, continuous, open occupancy of the property, for a prescribed period of time, under claim of right, and in opposition to the rights of the true owner. ADVERSE SELECTION the tendency of people with a greater likelihood of filing claims to be more interested in obtaining insurance coverage. For example, those with severe health problems want to buy health insurance, and people going to a dangerous place such as a war zone want to buy more life insurance. To combat the problem of adverse selection, insurance companies try to reduce their exposure to large claims by either raising premiums or screening out such applicants. ADVERTISING paid message communicated through the various media by industry, business firms, nonprofit organizations, or individuals. Advertising is persuasive and informational and is designed to influence the purchasing behavior and/or thought patterns of the audience. Advertising is a marketing tool and may be used in combination with SALES PROMOTIONS, PERSONAL SELLING tactics, or publicity. ADVOCACY ADVERTISING advertisements placed by companies presenting their own opinion on one or more public issues. The advertisements reflect the opinion of the company and are meant to influence public opinion. Issues include consumer rights, education, the environment, health, and taxation. AFFECTIVE BEHAVIOR behavior aimed at producing a desired outcome, such as trying to understand the needs of the other party and attempting to satisfy those needs. An example is the personality and salesmanship displayed by a salesperson that leads to a new account. AFFIANT person who makes and signs a written statement under oath. See also AFFIDAVIT. AFFIDAVIT written statement made under oath before an officer of the court, a NOTARY PUBLIC, or other person legally authorized to certify the statement. AFFILIATED CHAIN group of noncompeting retail stores throughout the United States whose association affords an economic advantage in large-scale purchasing. When a group of small stores get together to form such a chain, they can purchase in bulk and will be entitled to larger discounts. An affiliated chain can purchase advertising time and space as if it were a national advertiser. < previous page page_16 next page > < previous page page_17 next page > Page 17 AFFILIATED COMPANY In general: two companies are affiliated when one owns less than a majority of the voting stock of the other, or when both are subsidiaries of a third company. Banking: organization that a bank owns or controls by stock holdings, or which the bank's shareholders own, or whose officers are also directors of the bank. AFFILIATED GROUP for purposes of consolidated tax returns, an affiliated group is composed of companies whose common parent or other inclusive corporation owns at least 80% of the voting power and value of the stock of the includable corporations (except preferred stock). AFFILIATED RETAILER 1. member of an AFFILIATED CHAIN. 2. independent retailer who affiliates with other independent retailers under a common trade name for merchandising purposes. A group of such independent retailers will advertise under this common trade name. See also AFFILIATED WHOLESALER. AFFILIATED WHOLESALER 1. WHOLESALER who sponsors or owns a group of AFFILIATED RETAILERS. 2. wholesaler who affiliates with other wholesalers under a common trade name for merchandising purposes. AFFIRMATIVE ACTION steps taken to correct conditions resulting from past discrimination or from violations of a law, particularly with respect to employment. AFFIRMATIVE RELIEF relief, benefit, or compensation that may be granted to the defendant in a judgment or decree in accordance with the facts established in his favor. AFFREIGHTMENT contract with a carrier for the transportation of goods. AFL-CIO see AMERICAN FEDERATION OF LABOR-CONGRESS OF INDUSTRIAL ORGANIZATIONS. AFTER-ACQUIRED CLAUSE clause in a mortgage agreement providing that any additional mortgageable property acquired by the borrower after the mortgage is signed will be additional security for the obligation. AFTER-ACQUIRED PROPERTY Commercial law: property acquired by a debtor after he has entered into an agreement in which other property is put up as SECURITY for a loan. Bankruptcy law: property acquired by the bankrupt after he has < previous page page_17 next page > < previous page page_18 next page > Page 18 filed to be declared a bankrupt. This property is generally free of all claims of the bankrupt's creditors. AFTER MARKET see SECONDARY MARKET. AFTER-TAX BASIS basis for comparing the returns on a corporate taxable bond and a municipal tax-free bond. For example, a corporate bond paying 10% would have an after-tax return of 6.4% for someone in a 36% tax bracket. So any nontaxable municipal bond paying higher than 6.4% would yield a higher after-tax return. AFTER-TAX CASH FLOW in REAL ESTATE, CASH FLOW from income-producing property, less income taxes, if any, attributable to the property's income. The tax savings from the possible shelter of income earned outside the property is added to the cash flow that is earned by the property. For example, if a property generates a $1,000 cash flow and $500 tax loss that can be used to offset other income, the after-tax cash flow for a 36% tax bracket investor is $1,180 (0.36 X $500 + $1,000). AFTER-TAX EQUITY YIELD the RATE OF RETURN on an equity interest, taking into account financing costs and income tax implications of the investor. AFTER-TAX PROCEEDS FROM RESALE the amount of money left for the investor after all obligations of the transaction, and personal income taxes on the transaction. For example: Resale price $1,300,000 Less, TRANSACTION COSTS -100,000 Less, Outstanding mortgage -900,000 Less, Tax on gain -180,000 After-tax proceeds from resale $ 120,000 AFTER-TAX REAL RATE OF RETURN amount of money, adjusted for inflation, that an investor can keep out of the income and capital gains earned from investments. AGAINST THE BOX short sale by the holder of a LONG POSITION in the same stock. Box refers to the physical location of securities held in safekeeping by the broker. See also SHORT POSITION; SHORT-SALE RULE. AGE DISCRIMINATION denial of privileges as well as other unfair treatment of employees on the basis of age, which is prohibited by federal law under the Age Discrimination Unemployment Act of 1967. This act was amended in 1978 to protect employees up to 70 years of age, and in 1986 to protect mandatory retirement. AGENCY In general: relationship between two parties, one a principal and the other an AGENT who represents the principal in transactions with a third party. < previous page page_18 next page > < previous page page_19 next page > Page 19 Finance: certain types of accounts in trust institutions where individuals, usually trust officers, act on behalf of customers. Government: securities issued by government-sponsored corporations such as Federal Home Loan Banks or Federal Land Banks. Investment: act of buying or selling for the account and risk of a client. Personnel: company that refers potential employees to employers for a fee. See also HEADHUNTER. AGENCY BY NECESSITY agency relationship recognized by the courts that allows a spouse to charge necessities to the other spouse or allows a dependent to charge necessities to a parent. AGENCY DISCLOSURE a written explanation, to be signed by a prospective buyer or seller of real estate, explaining to the client the role that the broker plays in the transaction. The purpose of disclosure is to explain whether the broker represents the buyer or seller or is a dual agent (representing both) or a subagent (an agent of the seller's broker). This allows the customer to understand to which party the broker owes loyalty. AGENCY SHOP organization having an employee UNION where nonmembers are required to pay a fee to the union as an offset to the benefits they share with union members. This rule often depends on the terms of collective bargaining agreements and state laws. AGENT Real estate: a licensed salesperson who typically works under a broker. Insurance: individual who sells and services insurance policies in either of two classifications: 1. An independent agent represents at least two insurance companies and (at least in theory) serves clients by searching the market for the most advantageous price for the most coverage. The agent's commission is a percentage of each premium paid and includes a fee for servicing the insured's policy. 2. A direct writer represents only one company and sells only that company's policies. This agent is paid on a commission basis in much the same manner as the independent agent. AGGLOMERATION accumulation into a single entity, such as a holding company, of several diverse and unrelated activities. Conglomerate companies are examples of agglomeration. AGGLOMERATION DISECONOMIES inefficiency and loss resulting from AGGLOMERATION. The most common cause is unfamiliarity of the holding company management with activities and management requirements of subsidiaries in unrelated fields. AGGREGATE referring to the sum total of the whole. Aggregate output, for example, is the total of all output during a given period of time. < previous page page_19 next page > < previous page page_20 next page > Page 20 AGGREGATE DEMAND see AGGREGATE SUPPLY. AGGREGATE INCOME sum total of all incomes in an economy, with no adjustment for inflation, taxes, or certain kinds of double-counting. The GROSS DOMESTIC PRODUCT (GDP) is one of many measures of aggregate income. AGGREGATE INSURANCE LIMIT see ANNUAL AGGREGATE LIMIT. AGGREGATE SUPPLY in MACROECONOMICS, the total amount of goods and services supplied to the market at alternative price levels in a given period of time; also called total output. The central concept in SUPPLY-SIDE ECONOMICS, it corresponds with aggregate demand, defined as the total amount of goods and services demanded in the economy at alternative income levels in a given period, including both consumer and producers' goods; aggregate demand is also called total spending. AGGRESSIVE GROWTH (STOCK/MUTUAL) FUND STOCK or MUTUAL FUND holding stocks of rapidly growing companies. While these companies may be large or small, they all share histories of and prospects for above-average profit growth. Aggressive growth funds are designed solely for capital appreciation, since they produce little or no income from dividends. AGING OF ACCOUNTS RECEIVABLE or AGING SCHEDULE classification of trade ACCOUNTS RECEIVABLE by date of sale. Usually prepared by a company's auditor, the aging, as the schedule is called, is a vital tool in analyzing the quality of a company's receivables investment. The aging schedule reveals patterns of delinquency and shows where collection efforts should be concentrated. AGREEMENT mutual assent between two or more legally COMPETENT PARTIES, ordinarily leading to a CONTRACT. It includes executed SALES, GIFTS, and other transfers of PROPERTY, as well as promises without legal obligation. AGREEMENT OF SALE written agreement between seller and purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement; also called contract of sale; EARNEST MONEY contract. AGRIBUSINESS large-scale production, processing, and marketing of food and nonfood farm commodities and products. Agribusiness is a major commercial business. California has the largest concentration of agribusiness in the United States. AI see ARTIFICIAL INTELLIGENCE. AICPA see AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. AIRBILL papers that accompany a package sent through an express < previous page page_20 next page > < previous page page_21 next page > Page 21 mail service. The sender completes a form with multiple copies. It includes origin and destination addresses, services requested, and billing and shipping information. Multiple copies provide a receipt for the sender, another for the carrier's billing records, and at least one copy with the address to accompany the package to its destination. AIRBORNE EXPRESS company that offers speedy pickup and delivery of letters and packages. AIR FREIGHT use of air transportation for sending freight. It is faster and more expensive than truck, rail, or bus service. AIR RIGHTS right to use, control, or occupy the space above a designated property. Air rights often can be leased, sold, or donated to another party. AKA also known as. An example is John Jones, who is also called Lucky John by other salespeople in the organization. ALGOL (algorithmic language) name of two computer programming languages that have had a strong impact on programming language design. ALGORITHM sequence of instructions that tell how to solve a particular problem. An algorithm must be specified exactly, so there can be no doubt about what to do next, and it must have a finite number of steps. A computer program is an algorithm written in a language that a computer can understand. ALIAS otherwise; an indication that a person is known by more than one name. AKA and a/k/a mean 'also known as' and are used to introduce the listing of an alias. ALIEN one who is not a citizen of the country in which he lives. See also ILLEGAL ALIEN; RESIDENT ALIEN. ALIENATION in real property law, the voluntary transfer of TITLE and POSSESSION OF REAL PROPERTY to another person. The law recognizes the power to alienate (or transfer) property as an essential ingredient of FEE- SIMPLE ownership of property and generally prohibits unreasonable restraints on alienation. ALIEN CORPORATION company incorporated under the laws of a foreign country regardless of where it operates. Alien corporation can be used as a synonym for the term foreign corporation. However, foreign corporation also is used in U.S. state law to mean a corporation formed in a state other than that in which it does business. ALIMONY payment for the support of one's estranged spouse in the course of divorce or separation. Alimony and separate maintenance payments are taxable to the receiver and deductible by the payor. CHILD SUPPORT and other voluntary payments are not considered ali- < previous page page_21 next page > < previous page page_22 next page > Page 22 mony for tax purposes. Alimony is deductible for ADJUSTED GROSS INCOME (AGI); child support is not tax deductible. ALLEGATION assertion of fact in a PLEADING. It is a statement of the issue that the contributing party expects to prove. ALLOCATE 1. to distribute anything for use, including one's time or money. 2. in accounting, to spread a single cost over a number of products, customers, people, or time. For example, DEPRECIATION accounting attempts to allocate the cost of a WASTING ASSET over its estimated useful life. ALLOCATED BENEFITS payments in a DEFINED-BENEFIT PENSION PLAN. Benefits are allocated to the pension plan participants as premiums are received by the insurance company. Since the benefits purchased are paid up, the employee is guaranteed a pension at retirement, even if the firm goes out of business. ALLOCATION Broadcast: range of wavelengths assigned to a broadcast system by the Federal Communications Commission. Merchandising: quantity of merchandise designated for a particular prospect or MARKET. Tax or accounting: apportionment or assignment of income or expense for various purposes. For example, income and expense items of a TRUST or ESTATE are allocated between the CORPUS and INCOME components. Also, income, expense, credits, gains, and losses are allocated to the various partners in a PARTNERSHIP and shareholders of an S CORPORATION. See also APPORTIONMENT. ALLOCATION OF RESOURCES central subject of economics: manner in which scarce factors of production are apportioned among producers, and in which scarce goods are apportioned among customers. ALLODIAL owned freely; not subject to the restriction on ALIENATION that existed in feudal law. ALLODIAL SYSTEM legal system that allocates full property ownership rights to individuals. The allodial system is the basis for property rights in the United States. ALLOWANCE In general: reduction in price. Merchandising: reduction in price offered to a retailer by a manufacturer or wholesaler that is contingent upon some special arrangement. It usually compensates the retailer for expense incurred in marketing the product. See also BROKERAGE ALLOWANCE; RETAIL DISPLAY ALLOWANCE. ALLOWANCE FOR BAD DEBTS see BAD-DEBT RESERVE. < previous page page_22 next page > < previous page page_23 next page > Page 23 ALLOWANCE FOR DEPRECIATION see ACCUMULATED DEPRECIATION. ALLOWED TIME total time in which a job should be completed at standard performance, inclusive of allowances for fatigue, rest, personal needs, and contingencies; also called STANDARD TIME. ALL RISK/ALL PERIL insurance that covers each and every loss except for those specifically excluded. If the insurance company does not specifically exclude a particular loss, it is automatically covered. This is the broadest type of property policy that can be purchased. For example, if an insurance policy does not specifically exclude losses from wind damage, or from a meteor falling on the insured's house, the insured is covered for such losses. ALL THE TRAFFIC WILL BEAR or AS MUCH AS THE TRAFFIC WILL BEAR a policy of charging to the limit that customers will pay. Discussed in connection with products that seem to be overpriced. ALL WASHED UP a business failure; all the property is cleaned up because there is no more work to be done. ALPHA measurement of returns from an investment apart from market returns. Represents the amount of return expected from fundamental causes such as the growth rate in earnings per share; contrast with BETA, which is a measure of volatility. ALPHANUMERIC CHARACTER all the characters that are either alphabetic or numeric, that is, all letters from A to Z and all numbers from 0 to 9. ALTER EGO the other self. Under the doctrine of alter ego, the law will disregard the limited personal liability one enjoys when acting in a corporate capacity and will regard the act as his or her personal responsibility. To invoke the doctrine, it must be shown that the corporation was a mere conduit for the transaction of private business and that no separate identity of the individual and the corporation really existed. ALTERNATE VALUATION DATE valuation date six months (not 180 days) after the date of a person's death. For estate tax purposes, the executor may place a value on the estate as of the date of death or on the alternate valuation date. To use the alternative valuation date, the estate value and tax must be less than on the date of death. ALTERNATIVE DISPUTE RESOLUTION (ADR) alternatives to the slow and costly process of litigation, including ARBITRATION, CONCILIATION, MEDIATION, and SUMMARY proceedings. Some of these processes, such as mediation and arbitration, are being used by court systems to resolve disputes before trial. ALTERNATIVE HYPOTHESIS in statistical testing, a HYPOTHESIS < previous page page_23 next page > < previous page page_24 next page > Page 24 is accepted if a sample contains sufficient evidence to reject the NULL HYPOTHESIS. It is usually denoted by H1. In most cases, the alternative hypothesis is the expected conclusion (why the test was completed in the first place). ALTERNATIVE MINIMUM TAX a flat tax to ensure that corporate and high-income noncorporate taxpayers pay at least some tax, regardless of their deductions. A 26% or 28% rate (20% for corporations) applies to broadly based income. If the alternative minimum tax exceeds the regular income tax, then the former is to be paid instead of the regular income tax. The rate is applied to alternative minimum taxable income, which is taxable income increased by tax preferences and adjusted by adding back all or a portion of certain items that were deducted in computing regular taxable income. ALTERNATIVE MORTGAGE INSTRUMENT (AMI) any mortgage other than a fixed-interest-rate, level-payment amortizing loan. See also ADJUSTABLE-RATE MORTGAGE; GRADUATED-PAYMENT MORTGAGE; GROWING-EQUITY MORTGAGE; ROLLOVER LOAN; SHARED-APPRECIATION MORTGAGE; VARIABLE-RATE MORTGAGE. AMASS to accumulate an item such as money, property, or goods. A company may stock up on a commodity now for future sale when it believes that a sharp increase in the price of the commodity will take place at a later date. AMEND to alter. A statute is amended by changing (but not abolishing) an established law. A pleading is amended by adding to or subtracting from an already existing pleading. See also AMENDED (TAX) RETURN. AMENDED (TAX) RETURN form filed as a correction or supplement to, or replacement for, an original tax return. For example, a corporation may file Form 1120X, or an individual may file Form 1040X, to claim a refund for a prior year's tax return or provide a correction to it. See also CLAIM FOR REFUND. AMENDMENT addition to or change in a legal document. When properly signed, it has the full legal effect of the original document. AMENITIES in APPRAISAL, the nonmonetary benefits derived from property ownership, such as pride of home ownership. AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS (AAII) organization headquartered in Chicago and committed to the investment education of its nearly 100,000 members. Annual membership dues are approximately $50. AMERICAN AUTOMOBILE ASSOCIATION (AAA) association of motorists who can receive maps, tourist information, and emergency roadside service. Many hotels and motels strive for recommendation by the AAA. Also known as Triple A. < previous page page_24 next page > < previous page page_25 next page > Page 25 AMERICAN BANKERS ASSOCIATION (ABA) a trade organization for officers of commercial banks. Publishes the monthly ABA Banking Journal and several other specialized banking periodicals. AMERICAN BAR ASSOCIATION (ABA) a national organization of lawyers and law students that promotes improvements in the delivery of legal services and the administration of justice. AMERICAN BUSINESS PRESS, INC. association of specialized business publications, such as industrial, trade, and professional magazines. Abbreviated ABP, it was incorporated in 1965 as a result of the consolidation of Associated Business Publications and National Business Publications. The corporation maintains financial information about advertising agencies that use the business press and reports this information to its members. AMERICAN DEPOSITARY RECEIPT (ADR) receipt issued by U.S. banks to domestic buyers as a convenient substitute for direct ownership of stock in foreign companies. ADRs are traded on STOCK EXCHANGES and in OVER-THE-COUNTER markets like stocks of domestic companies. They are also known as American Depositary Shares. AMERICAN ECONOMICS ASSOCIATION (AEA) organization of economists, mostly those who are academicians. AMERICAN FEDERATION OF LABOR-CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL-CIO) largest national union in the United States. The Congress of Industrial Organizations (CIO) merged with the American Federation of Labor (AFL) in 1955. AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) organization headquartered in New York whose members are CERTIFIED PUBLIC ACCOUNTANTS. The AICPA prepares the CPA examination and provides educational and newsworthy information to its members. CPAs may prepare tax returns, represent taxpayers during IRS audits, and be called upon for analysis of more complex tax issues. AMERICAN MANAGEMENT ASSOCIATION (AMA) professional management association located in New York, which issues many publications. It conducts nationwide wage surveys on professional and management compensation as well as training seminars and meetings for management personnel. AMERICAN MARKETING ASSOCIATION (AMA) national professional society of MARKETING and MARKETING RESEARCH executives, sales and promotion managers, advertising specialists, and marketing teachers, headquartered in Chicago. The association publishes Marketing News, the Journal of Marketing, and the Journal of Marketing Research for the benefit of the public. It also offers < previous page page_25 next page > < previous page page_26 next page > Page 26 marketing bibliographies and various books and pamphlets on marketing. AMERICAN NATIONAL STANDARDS INSTITUTE (ANSI) institution that issues official standards in almost all industries. AMERICAN PLAN arrangement by a hotel whereby it charges a business person a price that includes room, meals, and services. AMERICAN STOCK EXCHANGE (AMEX or ASE) stock exchange with the second biggest volume of trading in the United States, located at 86 Trinity Place in downtown Manhattan. Stocks and bonds traded on the Amex are mainly those of small to medium-size companies, as contrasted with the huge companies whose shares are traded on the New York Stock Exchange. Stock options are also traded on the Amex, which is sometimes referred to as the Curb. AMERICANS WITH DISABILITIES ACT (ADA) federal law that prohibits discrimination against individuals with physical handicaps, including hiring practices and design of buildings intended to serve the public. AMERICA ONLINE (AOL) a leading commercial ONLINE SERVICE that serves as an entry point to the INTERNET for millions of home and business customers. AMICUS CURIAE Latin for 'friend of the court.' A person who is not a party to litigation but provides testimony at the invitation of the court. AMORTIZE or AMORTIZATION 1. reduction of a DEBT by periodic charges to assets or liabilities, such as payments on mortgages. 2. in accounting statements, the systematic write-off of costs incurred to acquire an intangible asset, such as patents, copyrights, goodwill, organization, and expenses. AMORTIZATION SCHEDULE table that shows the periodic payment, interest and principal requirements, and unpaid loan balance for each period of the life of a loan. AMORTIZATION TERM the time it takes to retire a DEBT through periodic payments. Also known as the full amortization term. See also FULLY AMORTIZED LOAN. Example: Many mortgage loans have an amortization term of 15, 20, 25, or 30 years. Some have an AMORTIZATION SCHEDULE as a 30-year loan, but require a BALLOON PAYMENT in 5, 10, or 15 years. AMORTIZED LOAN any loan with at least some payments to PRINCIPAL. AMOUNT sum, represented by a number; frequently number of dollars. < previous page page_26 next page > < previous page page_27 next page > Page 27 AMOUNT AT RISK 1. difference between the face value of a permanent life insurance policy and its accrued cash value. 2. in property and liability insurance, the lesser of the policy limit or the maximum possible loss to the insured. AMOUNT OF ONE same as COMPOUND AMOUNT OF ONE. AMOUNT OF ONE PER PERIOD same as COMPOUND AMOUNT OF ONE PER PERIOD. AMPERSAND the character &, which stands for the word and. AMTRAK National Railway Passenger Corporation; federal agency that runs passenger trains throughout the United States. ANALOG representing data in a form other than binary digits (bits). Analog devices, such as a camera, scanner, or microphone, permit use of unlimited variables to represent a continuous variation of sound or color. Binary digital devices must represent the same information with switches that are either on (1) or off (0). ANALYSIS examination and division of a business-related situation or problem into major elements in order to understand the item in question and make appropriate recommendations. An example is the evaluation of a product line in terms of pricing, quality, service, demand, and market share done by the marketing staff. The purpose of the effort is to identify problems so that marketing management can make better decisions to enhance profitability. ANALYSIS OF VARIANCE (ANOVA) statistical model that tests whether or not groups of data have the same or differing means. The ANOVA model operates by comparing the amounts of dispersion experienced by each of the groups to the total amount of dispersion in the data. ANALYST person who studies data and makes recommendations on a course of business actions. Analysts may study credit, securities, financial patterns, sales, etc. ANALYTIC PROCESS procedures and techniques employed to perform an analysis of a situation or event. For example, an investor, in deciding whether to commit funds to a company, would engage in financial statement analysis by looking at trends in the accounts over the years (e.g., sales) and financial ratios. ANALYTICAL REVIEW auditing process that tests relationships among accounts and identifies material changes. It involves analyzing significant ratios and trends for unusual changes and questionable items. Included in the analytical review process are: (1) reading important documents and analyzing their accounting and financial effects; (2) reviewing the activity in an account between interim and year-end, especially noting entries out of the ordinary; and (3) com- < previous page page_27 next page > < previous page page_28 next page > Page 28 paring current period account balances to prior periods as well as to budgeted amounts, noting reasonableness of account balances by evaluating logical relationships among them (i.e., relating payables to expenses, accounts receivable to sales). ANCHOR TENANT main tenant in a shopping center. It is often essential to have a lease commitment from an anchor tenant before a shopping center can be financed. ANCILLARY not the most important. For example, ancillary income for a hotel may come from vending machines that dispense canned drinks. ANNEXATION process by which an incorporated city expands its boundaries to include a specified area. The rules of annexation are established by state law and generally require a public ballot within the city and the area to be annexed. Other incorporated areas are generally protected from annexation by an adjacent city. ANNUAL BASIS statistical technique whereby figures covering a period of less than a year are extended to cover a 12-month period. The procedure, called annualizing, must take seasonal variations (if any) into account to be accurate. ANNUAL DEBT SERVICE required annual principal and interest payments for a loan. In corporate finance, the cash required in a year for payments of interest and current maturities of principal on outstanding debt. ANNUAL EARNINGS amount of profit realized in one year. Taxable income and the annual income indicated by financial statements may be significantly different. Schedule M is used for corporate tax returns to reconcile the differences. ANNUAL GIFT TAX EXCLUSION annual amount of up to $10,000 per donee per year that a donor may exclude from the gift tax. The amount allowed will be increased with inflation. ANNUALIZED RATE extrapolation of an occurrence lasting a limited time period to the amount or rate that would be generated in a year. For example, an interest rate of 2 1/2% per quarter would be annualized to 10%, slightly more with compounding. Sales of ice cream in July should be annualized by applying a seasonal adjustment that considers the fact that ice cream sales are higher in July than in a typical month. ANNUAL MEETING once-a-year meeting when the managers of a company report to stockholders on the year's results and the board of directors stands for election for the next year. The chief executive officer usually comments on the outlook for the coming year and, with other senior officers, answers questions from shareholders. ANNUAL MORTGAGE CONSTANT amount of ANNUAL DEBT < previous page page_28 next page > < previous page page_29 next page > Page 29 SERVICE compared to the principal; also expressed as a dollar amount. The formula is: ANNUAL PERCENTAGE RATE (APR) cost of credit that consumers pay, expressed as a simple annual percentage. According to the federal Truth in Lending Act, every consumer loan agreement must disclose the APR in large bold type. The APR is the annual effective interest rate. See also CONSUMER CREDIT PROTECTION ACT OF 1968. ANNUAL RENEWABLE TERM INSURANCE see TERM LIFE INSURANCE. ANNUAL REPORT formal financial statement issued yearly. The annual report of publicly owned corporations must comply with reporting requirements of the Securities and Exchange Commission, which include BALANCE SHEET, INCOME STATEMENT, and cash-flow reports audited by an independent certified public accountant. ANNUAL WAGE fixed salary paid out to an employee over the course of a year. ANNUITANT one who receives the benefits of an annuity. ANNUITIZE begin a series of payments from the capital that has built up in an ANNUITY. The payments may be a fixed amount, or for a fixed period of time, or for the lifetimes of one or two ANNUITANTS, thus guaranteeing income payments that cannot be outlived. ANNUITY contract sold by commercial insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the ANNUITANT), for the lives of two or more persons, or for a specified period of time. ANNUITY DUE see ORDINARY ANNUITY. ANNUITY FACTOR mathematical figure showing the present value of an income stream that generates one dollar of income each period for a specified number of periods. ANNUITY IN ADVANCE series of equal or nearly equal payments, each payable at the beginning of the period. For example, a landlord leases property for five years. The rent, payable at the beginning of each period, constitutes an annuity in advance. See also ORDINARY ANNUITY. ANNUITY IN ARREARS see ORDINARY ANNUITY. ANNUITY INCOME see ANNUITY. ANSWER defendant's principal PLEADING in response to the plaintiff's complaint. It must contain a denial of all the ALLEGATIONS the < previous page page_29 next page > < previous page page_30 next page > Page 30 defendant wishes to dispute, as well as any affirmative defenses by the defendant and any counterclaim against the plaintiff. ANTICIPATED HOLDING PERIOD time during which a limited partnership expects to hold onto an asset. In the prospectus for a real estate limited partnership, a sponsor will typically say that the anticipated holding period for a particular property is five to seven years. ANTICIPATORY BREACH breaking a contract before the actual time of required performance. It occurs when one person repudiates his contractual obligation before it is due, by indicating that he will not or cannot perform his contractual duties. ANTITRUST ACTS federal statutes that regulate trade in order to maintain competition and prevent monopolies. Many common business practices are governed by these statutes. The Sherman Anti-Trust Act of 1890 made price- fixing (the setting of prices in cooperation with competitors) illegal. The Clayton Anti-Trust Act of 1914 outlawed price discrimination (charging different prices to different buyers), as did the Robinson-Patman Act of 1936. Under these Acts, advertising and promotional ALLOWANCES are permitted only if they are offered to all dealers on equal terms. ANTIVIRUS SOFTWARE software that monitors a computer for VIRUSES by looking for irregularities in a computer system and then comparing its findings to a database of virus information. It is important to update virus definitions or signatures regularly and upgrade the software periodically to protect against newly created viruses. AOL see AMERICA ONLINE. APARTMENT dwelling unit within a multifamily structure, generally provided as rental housing. APARTMENT BUILDING structure with individual apartment units but a common entrance and hallway. An apartment building may have stores in it, for example, on the ground floor. Generally, when 80% or more of the revenue is received from residential rental units, the entire building may be depreciated as residential property over 27 1/2 years rather than 39 years as for commercial property. APL (A Programming Language) interactive computer programming language that is well suited for handling complex operations on arrays. APL uses several Greek letters and some other special symbols and thus requires a specially designed computer terminal. APPARENT AUTHORITY doctrine that a PRINCIPAL is responsible for the acts of his AGENT where the principal by his words or conduct suggests to a third person that the agent may act in the principal's behalf, and where the third person believes in the authority of the agent. < previous page page_30 next page > < previous page page_31 next page > Page 31 APPEAL BOND guarantee of payment of the original judgment of a court. When a judgment is appealed, a bond is usually required to guarantee that if the appeal is unsuccessful, funds would be available to pay the original judgment as well as costs of the appeal. This serves to discourage an individual from appealing merely to stall for time or for frivolous reasons. APPELLANT see PETITIONER. APPELLATE COURT (APPEALS TRIAL COURT) court having authority to review the law applied by a lower court in the same case. In most instances, the trial court first decides a lawsuit, with review of its decision then available in an appellate court. Examples of appellate courts are the U.S. Court of Appeals and U.S. Supreme Court. APPELLEE see DEFENDANT. APPLET a small application or utility that performs one specific task; usually designed to run within a larger program. The Accessories in WINDOWS are applets; applets in Microsoft OFFICE include Draw, Graph, and Equation Editor. APPLICATION (APP) an executable program that performs a specialized function other than system maintenance (which is performed by utilities). Commonly used applications include WORD PROCESSORS, SPREADSHEETS, DATABASES, communications software, and games. APPLICATION OF FUNDS uses of the funds section of the statement of changes in financial position. Using the WORKING CAPITAL concept of funds, the four applications are: (1) net loss; (2) increase in noncurrent assets, such as the purchase of land for cash; (3) decrease in noncurrent liabilities such as long-term debt payments; and (4) decrease in stockholders' equity as in the case of the purchase of treasury stock. If the CASH concept of funds flow is used, the two additional applications would be: (5) increase in current assets other than cash; and (6) decrease in current liabilities. APPLICATIONS PROGRAMMER person who writes programs that use the computer as a tool to solve particular applied problems. See also SYSTEMS PROGRAMMER. APPLIED ECONOMICS use of principles and results of theoretical economic study in the real world, particularly in the formulation of governmental economic policy. See also KEYNESIAN ECONOMICS. APPLIED OVERHEAD amount of OVERHEAD expenses that are charged in a COST ACCOUNTING system to a production job or a department. APPLIED RESEARCH research efforts devoted to the development of practical applications from pure research. Applied research in the < previous page page_31 next page > < previous page page_32 next page > Page 32 field of electronics developed the microcomputer RAM chip for use in electronic memory storage. APPOINTMENT, POWERS OF see POWERS OF APPOINTMENT. APPORTION, APPORTIONMENT 1. PRORATING of property expenses, such as taxes and insurance, between buyer and seller. 2. partitioning of property into individual parcels by tenants in common. 3. Tax (federal): the IRS can reallocate or reapportion items of income or expense between related taxpayers if the allocation made by the taxpayers was for the purpose of avoiding tax or inaccurately reflects taxable income. 4. Tax (state): many states require multistate taxpayers to compute the income taxable to that state by one of two methods: (a) direct allocationincome and expense items for a particular state must be specifically reported. (b) apportionmentfederal income is apportioned between states using any or all of the following factors: (i) sales revenue (ii) payroll expense (iii) property basis APPRAISAL professional opinion or estimate of the value of a property. For example, a property owner may have an appraisal made of a specific property to determine a reasonable offering price in a sale; to determine the value of the property at the time of the gift or death for estate or gift tax purposes; to allocate the purchase price to the land and improvements; or to determine the amount of HAZARD INSURANCE to carry. APPRAISAL FOUNDATION an organization that came into existence in 1989 in an effort to encourage uniform requirements for APPRAISAL qualifications and reporting standards. APPRAISAL REPORT describes the findings of an appraisal engagement. Reports may be presented in the following formats: oral, letter, form, or narrative; see UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICES. APPRAISAL RIGHTS statutory remedy available in many states to minority stockholders who object to an extraordinary action taken by the corporation (such as a MERGER). This remedy requires the corporation to repurchase the stock of dissenting stockholders at a price equivalent to its value immediately before the extraordinary corporate action. APPRAISE to estimate the value of property. APPRAISER person qualified to estimate the value of real property. The American Society of Appraisers in Washington, D.C. is a lead- < previous page page_32 next page > < previous page page_33 next page > Page 33 ing professional organization for business appraisers and other disciplines; the Appraisal Institute in Chicago is a leading organization for real estate appraisers. See also CERTIFIED GENERAL APPRAISER, CERTIFIED RESIDENTIAL APPRAISER, LICENSED APPRAISER. APPRECIATE 1. increase in value. 2. to understand the significance of something. APPRECIATED PROPERTY REAL, PERSONAL, or INTANGIBLE ASSETS that have a FAIR MARKET VALUE greater than their original cost, ADJUSTED TAX BASIS, or BOOK VALUE. APPRECIATION In general: increase in value over time. Taxes: excess of the fair market value of property over the taxpayer's cost or basis in such property. APPRENTICE a person who is learning a skill or trade from more experienced craftsmen while at work. APPROPRIATE 1. to set apart for, or assign to, a particular purpose or use. 2. to wrongfully use or take the property of another. APPROPRIATED EXPENDITURE in a BUDGET, amount set aside for a specific acquisition or purpose. APPROPRIATION money set aside for a specific purpose. Also, in real estate, the setting aside of land for a public use. APPROVED LIST list of investments that a mutual fund or other financial institution is authorized to make. The approved list may be statutory where a fiduciary responsibility exists. See also LEGAL LIST. APPURTENANT attached to something else. In property law, the term refers to the attachment of a restriction, such as an EASEMENT or COVENANT, to a piece of land, which benefits or restricts the owner of such land in his use and enjoyment. APR see ANNUAL PERCENTAGE RATE. A PRIORI STATEMENT 1. conclusion or judgment that is not necessarily true, that is neither proved by nor capable of being disproved by experience, and that is known to be true by a process of reasoning independent of all factual evidence. 2. assertion introduced presumptively, without analysis or investigation. APTITUDE intellectual ability of an individual to learn material sufficiently so that he can properly perform the business task required on the job. Some individuals have a natural talent and tendency for < previous page page_33 next page > < previous page page_34 next page > Page 34 specific business areas. An example is a trial lawyer with an intellectual and quick mind for question asking and logic. ARBITER person (other than a judicial officer) appointed by a court to decide a controversy according to the law. Unlike an ARBITRATOR, the arbiter needs the court's confirmation of his decision for it to be final. ARBITRAGE financial transaction involving the simultaneous purchase in one market and sale in a different market with a profitable price or yield differential. True arbitrage positions are completely HEDGEDthat is, the performance of both sides of the transaction is guaranteed at the time the position is assumedand are thus without risk of loss. A person who engages in arbitrage is called an arbitrageur or arb. ARBITRAGE BOND bond issued by a municipality in order to gain an interest rate advantage by refunding higher- rate bonds in advance of their call date. Proceeds from the lower-rate refunding issue are invested in higher-yielding treasuries until the first call date of the higher-rate issue being refunded. ARBITRAGEUR person or firm engaged in ARBITRAGE. Arbitrageurs attempt to profit when the same security or commodity is trading at different prices in two or more markets. Those engaged in risk arbitrage attempt to profit from buying stocks of announced or potential TAKEOVER targets. ARBITRATION submitting a controversy to an impartial person, the ARBITRATOR, chosen by the two parties in the dispute to determine an equitable settlement. Where the parties agree to be bound by the determination of the arbitrator, the process is called binding arbitration. In labor law, arbitration has become an important means of settling disputes, and the majority of labor contracts provide for arbitration of disputes over the meaning of contract clauses. ARBITRATOR impartial person chosen by the parties to solve a dispute between them. An arbitrator is empowered to make a final determination concerning the issue(s) in controversy and is bound only by his own DISCRETION. See also ARBITRATION. ARCHIVE STORAGE area commonly used for storing old documents for safety and security. AREA 1. two-dimensional space defined by boundaries, such as floor area, area of a lot, and market area. 2. scope or extent, as in area of expertise of a professional. AREA CODE three-digit telephone number prefix corresponding to a geographical area that allows direct long- distance dialing. < previous page page_34 next page > < previous page page_35 next page > Page 35 ARGUMENT in a computer spreadsheet program, values that must be specified for a given function. For example, in Excel the PMT function calculates the periodic payment for a loan based on the interest rate charged, the number of payments desired, and the principal amount. The syntax of the function is PMT (rate, nper, pv), where rate, nper, and pv are arguments. ARITHMETIC MEAN average obtained by dividing the sum of two or more items by the number of items. ARM'S-LENGTH TRANSACTION transaction among parties, each of whom acts in his or her own best interest. Transactions between the following parties would, in most cases, not be considered arm's length: a husband and wife; a father and son; a corporation and one of its subsidiaries. ARRAY collection of data that is given one name. An array is arranged so that each item in the array can be located when needed. An array is made up of a group of elements, which may be either numbers or character strings. Each element can be identified by a set of numbers known as subscripts, which indicate the row and column in which the element is located. ARREARAGE In general: amount of any past due obligation. Investment: amount by which interest on bonds or dividends on CUMULATIVE PREFERRED STOCK is due and unpaid. In the case of cumulative preferred stock, common dividends cannot be paid by a company as long as preferred dividends are in arrears. ARREARS, IN 1. at the end of a term. Interest on mortgage loans is normally paid in arrears; that is, interest is paid at the end of a month or other period. Generally, rent and insurance premiums are paid in advance. 2. in default; overdue in payment. ARTICLES OF INCORPORATION document that creates a private corporation according to the general corporation laws of the state. ARTIFICIAL INTELLIGENCE (AI) branch of computer science that deals with using computers to simulate human thinking. Artificial intelligence is concerned with building computer programs that can solve problems creatively, rather than simply working through the steps of a solution designed by the programmer. ASA a senior professional designation offered by the American Society of Appraisers. The ASA designation is awarded upon meeting rigorous requirements that include extensive experience, education, and approved demonstration reports. ASCII (American Standard Code for Information Interchange) stan- < previous page page_35 next page > < previous page page_36 next page > Page 36 dard code for representing characters as binary numbers, used on most microcomputers, computer terminals, and printers. In addition to printable characters, the ASCII code includes control characters to indicate carriage return, backspace, and the like. ASIACURRENCY a bank deposit in an Asian country that is denominated in the currency of another country. For example, a U.S. dollar deposited in a bank in Singapore is an Asiadollar. AS IS commercial term denoting agreement that buyer shall accept delivery of goods in the condition in which they are found on inspection prior to purchase, even if they are damaged or defective. ASKED selling price a property owner sets for the property. See also ASKING PRICE; BID AND ASKED. ASKING PRICE 1. price at which an investment is offered for sale; also called ask price, asked price, ask, or OFFERING PRICE. 2. per-share price at which mutual fund shares are offered to the public, usually the NET ASSET VALUE per share plus a sales charge, if any. See also BID AND ASKED. ASSAY test of a metal's purity to verify its content, such as to determine whether gold is 99.5% fine. ASSEMBLAGE combining of two or more parcels of land. For example, suppose someone buys two ADJOINING properties of land for $10,000 each. The large unified tract is worth $25,000. The process is assemblage. See also PLOTTAGE VALUE. ASSEMBLY LANGUAGE computer language in which each statement corresponds to one machine language statement. Assembly languages are more cumbersome to use than regular or high-level programming languages, but they are much easier to use than pure machine languages, which require that all instructions be written in binary code. ASSEMBLY LINE production method requiring workers to perform a repetitive task on a product as it moves along on a conveyor belt or track. An assembly line has the advantages of part standardization and rationalization of work. See also ASSEMBLY PLANT. ASSEMBLY PLANT physical plant where an assembly line is located, where production-line assembly work occurs. See also ASSEMBLY LINE. ASSESS 1. to determine the value of something. 2. to fix the value of property on the basis of which property taxes will be calculated. ASSESSED VALUATION dollar value assigned to property by a mu- < previous page page_36 next page > < previous page page_37 next page > Page 37 nicipality for purposes of assessing taxes, which are based on the number of mills per dollar of assessed valuation. If a house is assessed at $100,000 and the tax rate is 50 mills, the tax is $5,000. ASSESSMENT 1. amount of tax or special payment due to a municipality or association. See also ASSESSMENT RATIO. 2. proportionate share of a common expense. ASSESSMENT OF DEFICIENCY amount of tax determined to be due after an appellate review within the Internal Revenue Service and a tax court adjudication (if requested). ASSESSMENT RATIO ratio of assessed value to MARKET VALUE. For example, a county requires a 40% assessment ratio on all property to be taxed. Property with a $10,000 market value is therefore assessed at $4,000 (40% of $10,000), and the TAX RATE is applied to $4,000. ASSESSMENT ROLL public record of the assessed value of property in a taxing jurisdiction. The assessment roll of a town, for instance, lists each individual tract of land within its taxing jurisdiction and shows the assessed value of each. ASSESSOR official who determines property values, generally for real estate taxes. ASSET anything owned that has value; any interest in REAL PROPERTY or PERSONAL PROPERTY that can be used for payment of debts. See also CAPITAL ASSETS; CURRENT ASSET; FIXED ASSET; QUICK ASSET. ASSET ALLOCATION method of targeting investments to achieve the highest investment return while minimizing risk. Investment choices can vary according to market conditions. During a high-interest-rate period, a proportion of the investments will be targeted to interest-bearing securities, while during a period of low interest rates a greater proportion of the investments will be directed into equity investments. See also INVESTMENT PORTFOLIO. ASSET-BACKED SECURITIES BONDS or NOTES backed by loan paper or ACCOUNTS RECEIVABLE originated by banks, credit card companies, or other providers of credit and often enhanced by a bank LETTER OF CREDIT or by insurance coverage provided by an institution other than the issuer. ASSIGN sign a document transferring ownership from one party to another. Ownership can be in a number of forms, including tangible property, rights (usually arising out of contracts), or the right to transfer ownership at some later time. The party who assigns is the ASSIGNOR and the party who receives the transfer of titlethe assignmentis the ASSIGNEE. ASSIGNED RISK in automobile insurance, a class of persons to < previous page page_37 next page > < previous page page_38 next page > Page 38 whom insurance companies will not issue policies voluntarily, usually because their record of prior accidents has made them a high risk, and who therefore are assigned by state law to insurance companies and must pay higher rates. ASSIGNEE person to whom an agreement or contract is sold or transferred. See also ASSIGNOR. ASSIGNMENT transfer of rights under an insurance policy to another person or business. For example, to secure a debt, it is not uncommon for the policyowner to transfer to the creditor his rights to borrow on the cash value. Life insurance policies are freely assignable to secure loans and notes (property and casualty insurance policies are not). Creditors such as banks often have printed assignment forms on hand at the time of making loans. ASSIGNMENT OF INCOME taxpayer's direction that income earned by him be paid to another person so that it will be considered the other person's income for federal tax purposes. ASSIGNMENT OF LEASE transfer of rights to use leased property. The ASSIGNEE acquires the same rights and privileges as the ASSIGNOR. The assignor remains liable unless released by the landlord. ASSIGNOR party who assigns or transfers an agreement or contract to another. Suppose Davis has an option to buy certain land. She assigns her rights to Baker, so that Baker now has the same rights. Davis is the assignor. Baker is the ASSIGNEE. See also ASSIGN. ASSIMILATION absorption of a new issue of stock by the investing public after all shares have been sold by the issue's underwriters. See also ABSORBED. ASSOCIATION a body of persons united without a charter, but upon the methods and forms used by incorporated bodies, for the prosecution of some common enterprise. ASSUMABLE LOAN a mortgage loan that allows a new home purchaser to undertake the obligation of the existing loan with no change in loan terms. Loans without DUE-ON-SALE CLAUSES, including most FHA and VA mortgages, are generally assumable. ASSUMPTION FEE a charge levied by a lender on a buyer who assumes the existing loan on the subject property. ASSUMPTION OF MORTGAGE taking upon oneself the obligations of a mortgagor toward a mortgagee, generally as part of the purchase price of a parcel of real estate. By assuming the mortgage rather than taking SUBJECT TO THE MORTGAGE, the purchaser becomes personally liable on the debt. The seller is not relieved of the obligation unless the lender agrees to do so in a NOVATION. Many lenders refuse to allow mortgage loans to be assumed unless they < previous page page_38 next page >
