Finance Glossary Questions

Question 1

Represents the claims of suppliers related to goods or services they have furnished to an entity but for which they have not yet been paid. It’s part of the current liabilities of an entity.

Answer 1

Accounts Payable

Question 2

Money owed to an entity by its customers. It’s part of the current assets of an entity.

Answer 2

Accounts Receivable

Question 3

Money owed to providers of goods or services for which typically no bill exists or is ever sent. This includes wages, payroll taxes, interest due on loans and rent.

Answer 3

Accruals

Question 4

The spreading of repayments of a debt or obligation over a set period of time.

Answer 4

Amortization

Question 5

The increase in value of an asset or investment that results from inflation or direct investments that enhances the value or growth.

Answer 5

Appreciation

Question 6

The economic resources owned by an entity that have commercial or market value.

Answer 6

Assets

Question 7

A financial statement that summarizes the financial position of an entity by outlining its assets and liabilities and equity. Assets must equal liabilities and equity.

Answer 7

Balance Sheet

Question 8

The last payment on a loan that is substantially larger than subsequent payments.

Answer 8

Balloon Payment

Question 9

A certificate of debt issued by a government or business guaranteeing payment of the original investment plus interest by a specified future date. Municipal bonds are issued by a city, county, town or district. Interest earned on these bonds are exempt from federal income tax and, in some cases, state income tax. Revenue bonds are backed by the revenues received from a specific project such as a toll bridge. Industrial revenue bonds are municipal revenue bonds to finance industrial or commercial construction.

Answer 9

Bond

Question 10

A financial statement showing all actual cash receipts and disbursements of an entity for a specified period of time.

Answer 10

Cash Flow Statement

Question 11

Assets of a borrower pledged to secure a debt against default.

Answer 11

Collateral

Question 12

A private, for profit financial institution that specializes in short and medium term business, personal and real estate loans.

Answer 12

Commercial Bank

Question 13

A demand deposit usually required by a commercial bank as a condition for extending a line of credit or a bank loan.

Answer 13

Compensating Balance

Question 14

One that requires applicants to compete against one another in terms of need or appropriateness for the funding

Answer 14

Competitive Grant

Question 15

Direct costs incurred in the production of goods sold by an entity.

Answer 15

Cost of Goods Sold

Question 16

The chance that the return on an investment will be less than expected or that the borrower will not meet the terms of the loan of investment and that secondary repayment resources such as collateral will be insufficient to cover losses.

Answer 16

Credit Risk

Question 17

Any event or factor that counterbalances the peaks and troughs of the business cycle.

Answer 17

Counter Cyclical

Question 18

Cash and other assets often called cash equivalent (such as inventory, accounts receivable and pre-paid expenses) that are reasonably expected to be realized in cash or sold or consumed within 12 months.

Answer 18

Current Assets

Question 19

The share of profits of an entity distributed to its shareholders. They may be paid in cash, stock or other security.

Answer 19

Dividends

Question 20

Evaluation of an entity’s financial statements or portfolio of loans to determine its credit worthiness and other risk factors.

Answer 20

Due Diligence

Question 21

A type of enterprise zone. It’s a designated area, either urban or rural, that suffers from blight or economic distress where special benefits are offered to businesses located in the area to encourage economic development. Benefits include employment credits, tax credits, and tax exempt financing. The program was created under the Omnibus Budget Reconciliation Act of 1993.

Answer 21

Empowerment Zone

Question 22

A generic term for designated geographical areas within urban communities or rural areas on which various tax incentives and grants are targeted to encourage investment by businesses and the creation and retention of jobs.

Answer 22

Enterprise Zone

Question 23

Qualifying areas for annual CDBG funding based on a set formula. To qualify the area must be a central city of metropolitan area, urban county or city with populations over 50K, suffer from blight, poverty, aged housing and other factors.

Answer 23

Entitlement Community

Question 24

Funds that the owners have personally invested in an entity, as distinguished from debt capital, as well as residual value of an entity after deducting liabilities from assets and paying dividends.

Answer 24

Equity Capital

Question 25

A document usually issued by a commercial bank verifying that the client has credit for a specified amount, against which drafts can be drawn.

Answer 25

Letter of Credit

Question 26

Financial obligation to an outside party to be satisfied in the future.

Answer 26

Liability

Question 27

A claim on a secondary repayment source such as collateral to secure payment on an investment.

Answer 27

Lien

Question 28

The practice of tying the deposit of public money in a commercial bank to conditions regarding the bank's lending and investment practices.

Answer 28

Linked Deposits

Question 29

The ability to convert assets to cash quickly without loss of market value. It also refers to the ability of an entity to meet its current obligations.

Answer 29

Liquidity

Question 30

The uncertainty that an entity may not be able to liquidate its assets to meet demands for cash withdrawals, requiring the entity to sell its assets at a loss.

Answer 30

Liquidity Risk

Question 31

A sum of borrowed money that must be repaid with or without an established amount of interest.

Answer 31

Loan

Question 32

A promise by a third party to cover a loan in case of default.

Answer 32

Loan guarantee

Question 33

Help a business structure on an overall financial plan and prepare the application package to apply for funding.

Answer 33

Loan packaging

Question 34

The estimated worth of an asset if sold on the market

Answer 34

Market value

Question 35

The amount of debt, exclusive of accrued interest.

Answer 35

Principal

Question 36

Projected financial statements

Answer 36

Proforma

Question 37

How much money an investor will make on an investment compared to their original investment. Return on an investment is either interest payments on debt investment, dividends on equity investments and any capital gain (the increase in value of an investment over the initial investment).

Answer 37

Rate of Return

Question 38

The practice of financial institutions of designating certain areas of a city or certain groups as too risky for lending.

Answer 38

Redlining

Question 39

Net income that is not distributed as dividends to investors.

Answer 39

Retained Earnings

Question 40

Net income dividend by dollars invested.

Answer 40

Return on Investment

Question 41

A pool of funds that are lent out, whereby the loan repayments and income are recycled or plowed back into the pool which increases funds available for lending.

Answer 41

Revolving Loan Fund

Question 42

The degree of uncertainty that an investment will be lost.

Answer 42

Risk

Question 43

A method of spreading the risk burden. Individual investors purchase small shares of several investments. If a particular investment fails, the investor only loses his share of that investment rather than the whole investment.

Answer 43

Risk Pooling

Question 44

Markets where ownership of an investment is transferred from the one owner, usually the original, to another.

Answer 44

Secondary Market

Question 45

The process of evaluating a potential borrower in terms of its creditworthiness, risks involved, and performance potential.

Answer 45

Underwriting

Question 46

Item costs that change directly and proportionately with changes in the production volume (i.e. utility bills); the opposite of fixed costs.

Answer 46

Variable costs

Question 47

Interest rates that are tied to a money-market indicator, normally a US Treasury bill, and moves up and down with that market indicator. Also called floating rates or adjustable rates.

Answer 47

Variable interest rates

Question 48

Investment capital subject to considerable risk, generally associated with capitalizing new or unproven businesses.

Answer 48

Venture Capital

Question 49

An agreement that gives the owner the option within a specified period of time to purchase equity capital.

Answer 49

Warrant

Question 50

Current assets of an entity including cash, marketable securities, accounts receivables, inventory, and prepaid expenses. Net working capital is current assets less current liabilities.

Answer 50

Working Capital

Question 51

The historic price paid for an asset less total accumulated depreciation to date. This is compared to market value.

Answer 51

Book Value

Question 52

An option held by the issuing entity of a bond to redeem the bond before the maturity date.

Answer 52

Callable

Question 53

The difference b/w the price an investor paid for an investment and the proceeds received from the sale of that investment.

Answer 53

Capital Gains (or Loss)

Question 54

The difference b/w the supply of private sector financial capital and the demand for that capital.

Answer 54

Capital Gap

Question 55

To supply with capital of investment funds

Answer 55

Capitalize

Question 56

The total funding of an entity consisting of debt, stock, and retained earnings used to finance operations and meet debt obigations.

Answer 56

Capitalization

Question 57

Often in finance it has a broader definition that includes actual money and highly liquid short-term investments such as money market funds and Treasury bills.

Answer 57

Cash

Question 58

Obligations of a company that are expected to be satisfied (paid) either by the use of the current assets or by the creation of other current liabilities within 12 months. This includes accounts payable and current portion of long-term debt.

Answer 58

Current Liabilities

Question 59

A bond backed by the general credit or reputation of a business rather than a specific lien on assets.

Answer 59

Debenture

Question 60

Funds obtained from borrowing

Answer 60

Debt Capital

Question 61

A constitutional or legislative restriction on the amount of funds that a state or municipal gov't can borrow, usually expressed as a specific sum of money or a fixed percent of the assessed value of all taxable property within the gov'ts jurisdiction.

Answer 61

Debt Limit

Question 62

The cash required in a given period, usually one year, for payment of interest and the current payments of loan principal on outstanding debt. Also, the borrower's ability to meet debt and interest obligations.

Answer 62

Debt Service

Question 63

Failure to pay financial obligations

Answer 63

Default

Question 64

The provision of own funds by a lender to a borrower without going through another organization, typically used in terms of gov'ts, foundations and non-profits.

Answer 64

Direct Financing

Question 65

A weighted rate of return that accounts for inflation and other risks associated with an investment.

Answer 65

Discount Rate

Question 66

The principal of a bond or preferred stock.

Answer 66

Face Value

Question 67

Costs that are independent of the level of production (i.e. rent or mortgage); the opposite of variable costs.

Answer 67

Fixed Costs

Question 68

Federal government clause involving loan guarantees that allow the gov't to guarantee loans by promising to use its taxing power.

Answer 68

Full Faith and Credit

Question 69

A direct transfer of funds from a higher level of gov't to a lower level of gov't or business.

Answer 69

Grants-in-Aid

Question 70

A financial statement that derives the net income of an entity by summarizing the sources of current revenue and the costs associated with obtaining that revenue.

Answer 70

Income Statement

Question 71

The provision of funds from a lender to a borrower through another entity, process or incentives. Examples include guarantees of loans, linked deposits, tax breaks and credits.

Answer 71

Indirect Financing

Question 72

An overall general rise in prices.

Answer 72

Inflation

Question 73

The inability to pay ones' debts when they come due.

Answer 73

Insolvency

Question 74

1) The relation of debt to equity; the use of borrowed funds by an entity. 2) The use of incentives to induce private sector lenders, individuals or businesses to invest capital in a designated area, project or business

Answer 74

Leverage

Question 75

The amount of time before an investment or debt comes due.

Answer 75

Maturity

Question 76

An income statement identity. The amount remaining after all costs, expenses, and allowances for depreciation have been deducted from total receipts of an entity.

Answer 76

Net Income

Question 77

The amount by which total assets (typically measured by their fair market value) exceed total liabilities.

Answer 77

Net Worth

Question 78

A written promise to pay a debt, similar to bonds.

Answer 78

Notes

Question 79

The process of producing a product or service, getting it to market and collecting the proceeds from its sale. It's also defined as the flow of cash through the normal operations of a company.

Answer 79

Operating Cycle

Question 80

The benefit foregone by making an investment or incurring a liability.

Answer 80

Opportunity Costs

Question 81

An agreement that permits the purchase or sale or something within a specified period of time according to specified terms.

Answer 81

Option

Question 82

The principal of a bond or preferred stock

Answer 82

Par Value

Question 83

A method of spreading the risk burden. Individual investors purchase small shares of several investments. If a particular investment fails, the investor only loses his share of the investment rather than the whole investment

Answer 83

Pooling

Question 84

The value today of a future payment or stream of payments

Answer 84

Present Value

Question 85

The pledging of assets to cover a liability in case of default.

Answer 85

Security

Question 86

The chance that the value of the pledged collateral on an investment is less than the value of the investment.

Answer 86

Security Risk

Question 87

Equity money supplied to help a venture launch its operations.

Answer 87

Seed Capital

Question 88

A fund to which contributions are made, periodically for the purpose of ultimately paying debt or replacing assets.

Answer 88

Sinking Fund

Question 89

A venture capital firm licensed and monitored by the Small Business Administration. This can be capitalized with SBA funds.

Answer 89

Small Business Investment Company (SBIC)

Question 90

The entity's ability to meet interest expenses and obligation s associated with long-term debt.

Answer 90

Solvency

Question 91

A claim on a property, asset or repayment of a debt that is inferior to the interest of another party. This can apply to all debt instruments.

Answer 91

Subordinate Position

Question 92

Short-term credit or loan provided by a goods or service supplier to its customers; that is, the supplier does not demand advance or simultaneous payment for its sales.

Answer 92

Trade Credit

Question 93

The lowering rates on specific taxes, normally taxes owed on real or other property, below the rate commonly levied within the community.

Answer 93

Tax Abatement

Question 94

Debt capital repayable according to a specific schedule. It includes medium and long-term loans.

Answer 94

Term Loans