DEF.1 An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

DEF.2 Stopping or reducing of amount or value, as when assessments for ad valorem taxation are abated after the initial assessment has been made.

DEF.3 An owner of an interest in income-producing property who does not reside on the premises and who may rely on a property manager to oversee the investment.

DEF.4 A title that is unqualified. Fee simple is the best title that can be obtained (See also fee simple).

DEF.5 A full summary of all consecutive grants, conveyances, wills, records and judicial proceedings affecting title to a specific parcel of real estate, together with a statement of all recorded liens and encumbrances affecting the property and their present status. The person preparing the abstract of title, called an abstracted, searches the title as recorded or registered with the county recorder, county registrar, circuit court and/or other official sources. Simplified Definition: A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

DEF.6 Method of finding land value in which all improvement costs (less depreciation) are deducted from sales price. Also called extraction.

DEF.7 A provision in a mortgage, trust deed, promissory note or contract for deed (agreement of sale) that, upon the occurrence of a specified event, gives the lender (payee, obligee or mortgagee) the right to call all sums due and payable in advance of the fixed payment date (See Alienation Clause). The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender. Simplified Definition: Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.

DEF.8 A way to enter and leave a tract of land, sometimes by easement over land owned by another (See also egress and ingress).

DEF.9 The relative ease of entrance to a property by various means, a factor that contributes to the probable most profitable use of a site.

DEF.10 Structures on a property, such as sheds and garages, which are secondary to the main building.

DEF.11 Only 4,000 real estate professionals on two continents who have been awarded the ABR designation by the National Association of Realtors.

DEF.12 The gradual and imperceptible addition of land by alluvial deposits of soil through natural causes, such as shoreline movement caused by streams or rivers. This added land upon a bank or stream, navigable or not, becomes the property of the riparian or littoral owner, and it also becomes subject to any existing mortgages.

DEF.13 In accounting, a system of allocating revenue and expense items on the basis of when the revenue is earned or the expense incurred, not on the basis of when the cash is received or paid out.

DEF.14 (1) For accounting purposes, total depreciation taken on an asset from the time of its acquisition. (2) For appraisal purposes, the difference between reproduction or replacement cost and the appraised value as of the date of appraisal.

DEF.15 Expenses incurred that are not yet payable. In a closing statement, the accrued expenses of the seller typically are credited to the purchaser (taxes, wages, interest, etc.).

DEF.16 A formal declaration made before a duly authorized officer, usually a notary public, by a person who has signed a document; also, the document itself. An acknowledgment is designed to prevent forged and fraudulently induced documents from taking effect.

DEF.17 A market value appraisal of property condemned or otherwise acquired for public use, to establish the compensation to be paid to the owner.

DEF.18 A measure of land, 208.71 by 208.71 feet in area, being 43,560 square feet, or 160 square rods or 4,840 square yards.

DEF.19 The number of years elapsed since the original structure was built. Sometimes referred to as historical or chronological age.

DEF.20 Real, substantial and just damages, or the amount awarded to a complainant in compensation for his actual and real loss or injury (Black's Law Dictionary, 4th Ed.).

DEF.21 According to value (Latin); generally used to refer to real estate taxes that are based on assessed property value.

DEF.22 Additional material attached to, and made part of, a document. If there is space insufficient to write all the details of a transaction on the sales contract form or if changes are required to the original contract, the parties will attach an addendum to the document. The sales contract should incorporate the addendum by referring to it as part of the agreement. The addendum should refer to the sales contract and be dated and signed or initialed by all the parties.

DEF.23 (1) A mortgage that allows the interest rate to be adjusted according to an index after a specific period of time. (2) A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

DEF.24 The original cost or other basis of property, reduced by depreciation deductions and increased by capital expenditures.

DEF.25 Decrease or increase in the sales price of a comparable property to account for a feature that the property has or does not have in comparison with the subject property.

DEF.26 The date the interest rate changes on an Adjustable-Rate Mortgage (ARM).

DEF.27 A male person appointed by the court to settle the estate of a person who has died intestate (leaving no will). Sometimes referred to as the personal representative (See Executor).

DEF.28 A female person appointed by the court to settle the estate of a person who has died intestate (leaving no will). Sometimes referred to as the personal representative (See Executrix).

DEF.29 A fee paid before any services are rendered. Specifically, it is a practice of some brokers to obtain a nonrefundable fee from the seller in advance to cover the advertising of properties or businesses for sale while giving no guarantee that a buyer will be found, which is often held to be improper conduct. All Brokers must keep accurate records of expenditures.

DEF.30 A land use that has a detrimental effect on the market value of nearby properties.

DEF.31 The acquiring of title to real property owned by someone else by means of open, notorious, hostile and continuous possession for a statutory period of time. The burden to prove title is on the possessor, who must show that four conditions were met: (1) He or she has been in possession under a claim of right. (2) He or she was in actual, open and notorious possession of the premises so as to constitute reasonable notice to the record owner. (3) Possession was both exclusive and hostile to the title of the owner (that is, without the owner's permission and evidencing an intention to maintain the claim of ownership against all who may contest it). (4) Possession was uninterrupted and continuous for at least the prescriptive period stipulated by state law.

DEF.32 Relating to beauty, rather than to functional considerations.

DEF.33 A sworn statement written down and made under oath before a notary public or other official authorized by law to administer an oath. The term literally means "has pledged one's faith". The affiant (person making the oath, sometimes called the "deponent") must swear before the notary that the facts contained in the affidavit are true and correct.

DEF.34 A relationship created when one person, the principal, delegates to another, the agent, the right to act on his or her behalf in business transactions and to exercise some degree of discretion while so acting. An agency gives rise to a fiduciary relationship and imposes on the agent, as the fiduciary of the principal, certain duties, obligations, and high standards of good faith, ethics and loyalty.

DEF.35 One authorized to represent and to act on behalf of another person (called the principal). Unlike an employee, who merely works for a principal, an agent works in the place of a principal. The main difference between an agent and an employee is that the agent may bind his or her principal by contract, if within the scope of authority, whereas an employee may not unless given express authorization.

DEF.36 In statistics, the sum of all individuals.

DEF.37 One whose legal right is invaded by an act complained of. The word "aggrieved" refers to a substantial grievance, a denial of some personal or property right, or the imposition upon a party of a burden or obligation (Black's Law Dictionary, 4th Ed.).

DEF.38 Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

DEF.39 Persons with acquired immunodeficiency syndrome are protected under most federal and state discrimination laws. If buyers ask the real estate agent whether a prior occupant had AIDS, most agents point out that the law prevents responding one way or the other. Many states have amended their licensing laws to provide that the fact that someone has AIDS is not deemed a material fact and therefore does not form the basis for a claim that a broker concealed a material fact. Also protected are persons with AIDS-Related Complex (ARC) or Human Immunodeficiency Virus infection (HIV).

DEF.40 The act of transferring ownership, title or an interest or estate in real property from one person to another. Property is usually sold or conveyed by voluntary alienation, as with a deed or assignment of lease. Involuntary alienation takes place when property is sold against the owner's will, as in a foreclosure sale or a tax sale (See Alienation Clause).

DEF.41 A provision sometimes found in a promissory note or mortgage that provides that the balance of the secured debt becomes immediately due and payable at the option of the mortgagee upon the alienation of the property by the mortgagor. Alienation is usually broadly defined to include any transfer of ownership, title or an interest or estate in real property, including a sale by way of a contract for deed. Also called a due-on-sale clause (See Acceleration clause).

DEF.42 The allocation of the appraised total value of the property between land and building. The allocation may be accomplished either on a ratio basis or by subtracting a figure representing building value from the total appraised value of the property.

DEF.43 The percentage of potential gross income that will be lost due to vacant units, collection losses or both.

DEF.44 The qualities and state of being pleasant and agreeable; in appraising, those qualities that are attached to a property and from which the owner derives benefits other than monetary; satisfaction of possession and use arising from architectural excellence, scenic beauty and social environment.

DEF.45 The gradual repayment or retiring of a debt by means of systematic payments of principal and/or interest over a set period, so that at the end of the period there is a zero balance. The principal is thus directly reduced or amortized over the life of the loan. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

DEF.46 A mortgage loan in which the principal and interest are payable in periodic installments during the term of the loan so that at the completion of all payments there is a zero balance.

DEF.47 An expression of the relationship of the total finance charge to the total amount to be financed as required under the federal Truth-in-Lending Act. Tables available from any Federal Reserve Bank may be used to compute the rate, which must be calculated to the nearest one-eighth of 1 percent. Use of the APR permits a standard expression of credit costs, which facilitates easy comparison of lenders.

DEF.48 A fixed, regular return on an investment.

DEF.49 A method of capitalization that treats income from real property as a fixed, regular return on an investment. For the annuity method to be applied the lessee must be reliable and the lease must be long term.

DEF.50 State and federal laws designed to maintain and preserve business competition. The Sherman Antitrust Act (1890) is the principal federal statute covering competition, which is defined by most courts as "that economic condition in which prices are determined by market forces without interference from private concerns and there is reasonable freedom of entry into most businesses".

DEF.51 The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.

DEF.52 An estimate of quantity, quality or value; the process through which conclusions of property value are obtained; also refers to the report setting forth the process of estimating value.

DEF.53 Nonprofit Corporation established in 1987 and headquartered in Washington, D.C., sponsored by major appraisal and appraisal- related professional and trade groups.

DEF.54 The approaches used in the appraisal of real property (See also cost approach, income capitalization approach, sales comparison approach).

DEF.55 A systematic analysis of the factors that bear on the value of real estate; an orderly program by which the problem is defined; the work necessary to solve the problem is planned; the data involved are acquired, classified, analyzed and interpreted into an estimate of value; and the value estimate is presented in the form requested by the client.

DEF.56 An appraiser's written opinion to a client of the value sought for the subject property as of the date of appraisal, giving all details of the appraisal process.

DEF.57 Created by the Appraisal Foundation and responsible for establishing minimum standards of appraisal competence.

DEF.58 An estimate by an appraiser of the amount of a particular value, such as assessed value, insurable value or market value, based on the particular assignment.

DEF.59 An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

DEF.60 Created by the Appraisal Foundation and responsible for establishing minimum requirements for licensed and certified appraisers and licensing and certifying examinations.

DEF.61 Permanent or temporary increase in monetary value over time due to economic or related causes. Approaches to value. Any of the following three methods used to estimate the value of real estate: cost approach, income capitalization approach and sales comparison approach.

DEF.62 Anything used with land for its benefit, either affixed to land or used with it, that will pass with the conveyance of the land.

DEF.63 An expression of the relationship of the total finance charge to the total amount to be financed as required under the Federal Truth-in-Lending Act. Tables available from any Federal Reserve Bank may be used to compute the rate, which must be calculated to the nearest one-eighth of 1 percent. Use of the APR permits a standard expression of credit costs, which facilitates easy comparison of lenders. Certain real estate brokerage activities have come under public scrutiny by the Federal Trade Commission. These activities include the fixing of general commission rates by local boards or groups of brokers and the exclusion of brokers from membership in local boards or in multiple-listing arrangements due to unreasonable membership requirements.

DEF.64 A transaction in which both buyer and seller act willingly and under no pressure, with knowledge of the present conditions and future potential of the property, and in which the property has been offered on the open market for a reasonable length of time and there are no unusual circumstances.

DEF.65 As defined under the federal Truth-in-Lending Law, a person who regularly arranges for the extension of consumer credit by another person if a Finance charge will be imposed, if there are to be more than four installments, and if the person extending the credit is not a creditor. At present, the term does not include a real estate broker who arranges seller financing of a dwelling or real property.

DEF.66 An arrangement of statistical data according to numerical size.

DEF.67 Words in a contract intended to signify that no guarantees whatsoever are given regarding the subject property and that it is being purchased exactly as it is found. An "as-is" indicator is intended to be a disclaimer of warranties or representations. The recent trend in the courts to favor consumers tends to prevent sellers from using as-is wording in a contract to shield themselves from possible fraud charges brought on by neglecting to disclose material defects in the property.

DEF.68 The combining of two or more adjoining lots into one larger tract to increase their total value.

DEF.69 To make a judgment of value.

DEF.70 The value placed on property, land and improvements by a public tax assessor for purposes of determining property taxes.

DEF.71 The imposition of a tax, charge or levy, usually according to established rates (See also special assessment).

DEF.72 One who determines property values for the purpose of ad valorem taxation.

DEF.73 Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets". These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

DEF.74 The transfer of the right, title and interest in the property (ownership) of one person (the assignor) to another (the assignee). There are assignments of, among other things, mortgages, sales contracts, contracts for deed, leases and options. Simplified Definition: When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

DEF.75 The transfer of the right, title and interest in the property of one person (the assignor) to another (the assignee). There are assignments of, among other things, mortgages, sales contracts, contracts for deed, lenses and options. Simplified Definition: A written document that transfers the beneficial interest in a note and deed of trust from one to another.

DEF.76 A real estate license classification used in some states to describe a person who has qualified as a real estate broker but still works for and is supervised by another broker; also called a broker-salesperson, broker-associate or affiliate broker.

DEF.77 A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

DEF.78 The term applied when a buyer assumes the seller's mortgage.

DEF.79 An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability. In the assumption, the mortgagee's consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such an "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage". Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

DEF.80 The legal process of seizing the real or personal property of a defendant in a lawsuit by levy or judicial order, and holding it in court custody as security for satisfaction of a judgment. The lien is thus created by operation of law, not by private agreement. The plaintiff may recover such property in any action upon a contract, express or implied.

DEF.81 In statistics, the measure of how far the average individual or narrate differs from the mean of all variants.

DEF.82 An offer to buy submitted to a seller with the understanding that the seller has already accepted a prior offer; a secondary offer. Sometimes the seller accepts the backup offer contingent on the failure of the sales transaction on the part of the first purchaser within a specified period of time. The seller must be careful how he or she proceeds, however, when the time for buyer's performance under the first contract has expired.

DEF.83 The appraisal principle that states that the greatest value of a property will occur when the type and size of the improvements are proportional to each other as well as to the land.

DEF.84 A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

DEF.85 A condition of financial insolvency in which a person's liabilities exceed assets and the person is unable to pay current debts. By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

DEF.86 A deed that contains no warranties against liens or other encumbrances but implies that the grantor has the right to convey title.

DEF.87 A reference survey line of the government or rectangular survey, being an imaginary line extending east and west and crossing a principal meridian at a definite point.

DEF.88 The minimum rent payable under a percentage lease.

DEF.89 The dollar amount that the Internal Revenue Service attributes to an asset for purposes of determining annual depreciation or cost recovery, and gain or loss in the sale of the asset. The determination of basis is of fundamental importance in tax aspects of real estate investment. All property has a basis. If property was acquired by purchase, the owner's basis is the cost of the property plus the value of any capital expenditures for improvements to the property, reduced by any cost recovery depreciation actually taken or allowable (See adjusted basis).

DEF.90 The standard or base from which specific estimates are wade. A permanent reference mark (PRM) used by surveyors in measuring differences in elevation.

DEF.91 A person who receives benefits from the gifts or acts of another, as in the case of one designated to receive the proceeds from a will, insurance policy, or trust; the real owner, as opposed to the trustee who holds only legal title. With a trust, the trustee holds the legal title, but the beneficiary enjoys the benefits of ownership.

DEF.92 Your written authorization instructing the trustee to make the initial opening bid at the trustee's sale on the lender's behalf. This form will also advise our office of any additional amounts to be included in the opening bid, (total debt), such as funds advanced by you to pay delinquent real estate taxes, etc.

DEF.93 A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

DEF.94 A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

DEF.95 A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to wake the additional payment which will then be paid to reduce your principle.

DEF.96 A trust deed secured by several properties or a number of lots. A blanket mortgage is often used to secure construction financing for proposed subdivisions or condominium development projects. The developer normally seeks to have a "partial release" clause inserted in the mortgage so that he or she can obtain a release from the blanket loan for each lot as it is sold, according to a specified release schedule.

DEF.97 In or with good faith; honestly, openly, and sincerely; without deceit or fraud. Truly; actually; without simulation or pretense. Innocently; in the attitude of trust and confidence; without notice of fraud, etc. (Black's Law Dictionary, 4th Ed.)

DEF.98 Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

DEF.99 The value of a property as an asset on the books of account; usually, reproduction or replacement cost, plus additions to capital and less reserves for depreciation.

DEF.100 Money or other property that is not like-kind, which is given to make up any difference in value or equity between exchanged properties. Boot may be in the form of cash; notes; gems; the market value of an asset such as a mortgage, land contract, personal property, goodwill, a service or a patent offered in an exchange. The taxable gain in the like-kind exchange is recognized immediately to the extent of boot, whereas other gain from the exchange may be deferred until subsequent transfer.

DEF.101 Violation of any of the terms or conditions of a contract without legal excuse; default; nonperformance. The non-breaching party can usually seek one of three alternative remedies upon a material breach of the contract: rescission of the contract, action for money damages or an action for specific performance.

DEF.102 (See observed condition depreciation)

DEF.103 That point at which total income equals total expenses.

DEF.104 The ratio of operating expenses plus the property's annual debt service to potential gross income.

DEF.105 An equity mortgage placed on presently owned real estate that is used to finance the down payment of newly acquired real estate. Bridge loans are often used by those who have not yet sold their previous property, but must close on a purchase property.

DEF.106 An experienced agent licensed by the state to supervise other licensed agents acting on behalf of others in a transaction.

DEF.107 The sum of the discount and capital recapture rates for a building.

DEF.108 Rules of local, municipal or state governments specifying minimum building and construction standards for the protection of public safety and health.

DEF.109 Distances from the ends and/or sides of the lot beyond which construction way not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

DEF.110 A method of capitalization using net income remaining to building after interest on land value has been deducted.

DEF.111 Any transfer in bulk of a substantial part of the materials, supplies, merchandise, equipment or other inventory of an applicable enterprise that is not in the ordinary course of the transferor's business.

DEF.112 Any type of business that is for sale (also called business brokerage). The sale or lease of the business and goodwill of an existing business, enterprise or opportunity, including a sale of all or substantially all of the assets or stock of a corporation, or assets of partnership or sole proprietorship.

DEF.113 Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower's payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buy down" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buy down adjustments) will be higher than the current market rate. One reason for doing this is because the borrower way get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

DEF.114 A broker and the agents under his or her supervision who have been formally appointed by a buyer to act on its behalf in a real estate transaction.

DEF.115 A broker who represents the buyer in a fiduciary capacity. Some buyer's brokers practice single agency, in which they represent either buyers or sellers, but never both in the same transaction. Some buyer's brokers represent only buyers and refer prospective sellers to other brokers. The broker is paid by the buyer, or through the seller or listing broker at closing, provided all parties consent.

DEF.116 Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps". Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

DEF.117 The return of an investment; the right of the investor to get back the amount invested at the end of the tern of ownership or over the productive life of the improvements.

DEF.118 The percentage rate applied to the income a property is expected to produce to derive an estimate of the property's value; includes both an acceptable rate of return on the amount invested (yield) and return of the actual amount invested (recapture).

DEF.119 A time deposit held in a bank which pays a certain amount of interest to the depositor.

DEF.120 One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

DEF.121 A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.

DEF.122 A certificate insured by the Veterans Administration setting forth a property's current market value estimate, based on a VA-approved appraisal. The CRV places a ceiling on the amount of a VA-guaranteed loan allowed for a particular property.

DEF.123 A statement of opinion prepared by a title company, licensed abstracter or an attorney on the status of a title to a parcel of real property, based on an examination of specified public records. This certificate of title should not be confused with the certificate of title that is issued to a titleholder of land registered under the Toreens System, or with a title insurance policy. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy, but it does certify the condition of title as of the date the certificate is issued, on the basis of an examination of the public records maintained by the recorder of deeds, the county clerk, the county treasurer, the city clerk and collector and clerks of various courts of record. The certificate also may include records involving taxes, special assessments, ordinances, zoning and building codes. Note that a certificate of title does not offer protection against "off-the-record" matters such as undisclosed liens, rights of parties in possession and matters of survey and location. Nor does it protect against "hidden defects" in the records themselves, such as fraud, forgery, lack of competency or lack of delivery. A title insurance policy, not a certificate of title, protects against certain off-the-record and hidden defects risks.

DEF.124 A title that is free of liens or legal questions as to ownership of the property.

DEF.125 One who hires another person as a representative or agent for a fee.

DEF.126 The consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment by the buyer of the purchase price. Closing in some areas may not occur until the documents are recorded; however, under general rules of real estate law, transfer of title takes place upon delivery of the deed to the grantee.

DEF.127 This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorder’s office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.

DEF.128 Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items". Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

DEF.129 In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

DEF.130 This is a term often used by real estate brokers in preparing a report for prospective sellers and buyers, indicating market trends in various neighborhoods, based on computer statistics generated from multiple-listing service data. Generally, these analyses are used for clients to determine a listing price for the sale of a home or for buyers to determine if a list price is reasonable for a given location.

DEF.131 A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

DEF.132 Breach of a legal or equitable duty that the law declares fraudulent because of its tendency to deceive others, despite no showing of dishonesty or intent to deceive. A broker may be charged with constructive fraud for failing to disclose a known material fact when the broker had a duty to speak for example, if a listing broker failed to disclose a known major foundation problem not readily observable upon an ordinary inspection.

DEF.133 Adjacent; in actual contact; touching.

DEF.134 A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

DEF.135 An agreement entered into by two or more legally competent parties who, for a consideration, undertake to do or to refrain from doing some legal act or acts.

DEF.136 A contract for the purchase and sale of real property in which the buyer agrees to purchase for a certain price and the seller agrees to convey title by way of a deed or an assignment of lease (for leasehold property). In addition to binding the parties to the purchase and sale of the property during the period of time required to close the transaction, the contract frequently serves as the initial directions to the Closing Agent or Escrow Company to process the mechanics of the transaction. In essence, the contract of sale is an executory contract to convey property, serving as the vehicle to get to the deed, which finally conveys title; it is the blueprint for the entire transaction. Some of the many names for this contract are sales contract, purchase agreement, deposit receipt, offer and acceptance, agreement of sale, offer to lease or purchase and sale agreement.

DEF.137 In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

DEF.138 A mortgage loan, made with real estate as security, which is neither insured by the FHA nor guaranteed by the VA.

DEF.139 A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.)

DEF.140 An association of shareholders, created under law, having a legal identity separate from the individuals who own it. Correction lines. A system of compensating for inaccuracies in the rectangular survey system due to the curvature of the earth. Every fourth township line (24-mile intervals) is used as a correction line on which the intervals between the north and south range lines are measured again and corrected to a full six miles.

DEF.141 A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

DEF.142 Short for "deed in lieu of foreclosure", this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

DEF.143 A statement denying legal responsibility, frequently found in the form of the statement, "There are no promises, representations, oral understandings or agreements except as contained herein". Such a statement, however, would not relieve the maker of any liabilities for fraudulent acts or misrepresentations (See hold-harmless clause).

DEF.144 An amount which in addition to the mortgage(s), equals the purchase price of a property.

DEF.145 An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

DEF.146 Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.

DEF.147 Once each year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.

DEF.148 California's Fair Employment and Housing Act (FEHA) (Sections 12900-12996 of the Government Code) prohibits housing discrimination based on marital status as well as race, color, religion, sex, national origin or ancestry. The Department of Fair Employment and Housing enforces the law, which is based on the former Rumford Fair Housing Act. Example: Some years ago Len Lessor tried to evict Alice Tenant because Alice, an unmarried woman, was living with an unrelated adult wale. Len was unsuccessful because his intended action violated what was then the Rumford Act. Len recently decided to require that each member of an unrelated couple living together in one of his apartments meet his rental financial requirements, even though married couples can aggregate their income to meet the financial requirements. Can Len do that? No. The Fair Employment and Housing Act bans discrimination based on marital status. Note: Discrimination under FEHA does not include refusal to rent part of a single-family, owner-occupied dwelling to only one individual. All notices and advertisements must comply with FEHA, except for those expressing a preference for applicants of one sex for the sharing of living in a single dwelling unit.

DEF.149 The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

DEF.150 Familial status is defined as one or more individuals who have not obtained the age of eighteen (18) years, being domiciled with a parent or other person having custody, or anyone who is pregnant. It is therefore unlawful to refuse housing to anyone with children under the age of 18 or anyone who is pregnant, except when such housing meets the definition of housing for older persons.

DEF.151 The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company, is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library. Fannie Mae's Community Home Buyer's Program is an income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

DEF.152 An analysis of a proposed subject or property with emphasis on the attainable income, probable expenses and most advantageous use and design. The purpose of such a study is to ascertain the probable success or failure of the project under consideration.

DEF.153 Commonly known as "Freddie Mac", a federally chartered corporation established in 1970 for the purpose of purchasing mortgages in the secondary market. Freddie Mac was created as a part of the savings association system and, while it is not so limited, its loan purchase policies are designed to accommodate savings association needs. It functions with an independent board of directors but is subject to oversight by HUD.

DEF.154 A federal agency of the U.S. Department of Housing and Urban Development (HUD), the FHA was established in 1934 under the National Housing Act to encourage improvement in housing standards and conditions, to provide an adequate home-financing system through the insurance of housing mortgages and credit and to exert a stabilizing influence on the mortgage market. FHA was the government's response to a lack of quality housing, excessive foreclosures and a building industry that collapsed during the depression. Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

DEF.155 Popularly known as "Fannie Mae", an active participant in the secondary mortgage market. Fannie Mae was established as a federal agency in 1938 for the purpose of purchasing FHA loans from loan originators to provide some liquidity for government-insured loans in a depression-wracked economy when few lending institutions would undertake this type of loan.

DEF.156 Ownership of property that is limited in some way.

DEF.157 The maximum possible estate one can possess in real property. A fee title estate is the least limited interest and the most complete and absolute ownership in land; it is of indefinite duration, freely transferable and inheritable. A "fee title" is sometimes referred to as "the fee". (See Fee Simple)

DEF.158 The Federal Housing Administration. Insures loans made by approved lenders in accordance with its regulations.

DEF.159 A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

DEF.160 A mortgage that has priority as a lien over all other mortgages.

DEF.161 Those costs that are more or less permanent and do not vary in relation to the property's occupancy or income, such as real estate taxes and insurance for fire, theft and hazards.

DEF.162 Anything affixed to land, including personal property attached permanently to a building or to land so that it becomes part of the real estate.

DEF.163 Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

DEF.164 The act of refraining from taking legal action despite the fact that payment of a promissory note in a mortgage or deed of trust is in arrears. It is usually granted only when a borrower makes a satisfactory arrangement by which the arrears will be paid at a future date.

DEF.165 A court action initiated by a mortgagee or lienor for the purpose of having the court order that the debtor's real estate be sold to pay the mortgage or other lien (mechanic's lien or judgment).

DEF.166 The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

DEF.167 A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

DEF.168 A federal agency created in 1968 when the Federal National Mortgage Association (FNMA) was partitioned into two separate corporations. "Ginnie Mae", as it is popularly called, is a corporation without capital stock and is a division of HUD. The GNMA operates the special assistance aspects of federally aided housing programs and has the management and liquidating functions of the old FNMA. The FNMA is authorized to issue and sell securities backed by a portion of its mortgage portfolio, with the GNMA guaranteeing payment on such securities. GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA).

DEF.169 A lease of land alone, sometimes secured by improvements placed on the land. Also called a land lease, the ground lease is a means used to separate the ownership of the land from the ownership of the buildings and improvements constructed on the land.

DEF.170 A type of loan that rapidly increases the equity in a property by increasing the monthly payments a certain percentage each year and applying those increases to the principal.

DEF.171 An examination of the physical structure and systems of a home and property.

DEF.172 A federal law that requires lenders with federally related loans to disclose the number of loan applications and loans made in different parts of their service areas; designed to eliminate the discriminatory practice of redlining.

DEF.173 Department of Housing and Urban Development.

DEF.174 Real property made suitable for building by the addition of utilities and publicly owned structures, such as a curb, sidewalk, street-lighting system and/or sewer.

DEF.175 Structures of whatever nature, usually privately rather than publicly owned, erected on a site to enable its utilization, e.g., buildings, fences, driveways and retaining walls.

DEF.176 A real estate broker who specializes in brokering industrial real estate.

DEF.177 The highest reasonable value that can be placed on property for insurance purposes.

DEF.178 A percentage of the principal amount of a loan charged by a lender for its use, usually expressed as an annual rate.

DEF.179 Return on an investment; an interest rate is composed of four component rates: safe rate, risk rate, non-liquidity rate and management rate. Management rate. Compensation to the owner for the work involved in managing an investment and reinvesting the funds received from the property.

DEF.180 Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. On the death of a joint tenant, the decedent's interest passes to the surviving joint tenant(s) by the right of survivorship.

DEF.181 The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.

DEF.182 The formal decision of a court on the respective rights and claims of the parties to an action or suit. A judgment that has been entered and recorded with the county recorder usually becomes a general lien on the property of the defendant.

DEF.183 One who owns property and leases it to a tenant.

DEF.184 A written or oral contract for the possession and use of real property for a stipulated period of time, in consideration for the payment of rent. Leases for more than one year generally must be in writing.

DEF.185 A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.

DEF.186 The charge paid by the buyer to the mortgage lender when applying for a mortgage.

DEF.187 The charge paid by the buyer to the lender for processing a mortgage.

DEF.188 The most probable price real estate should bring in a sale occurring under normal market conditions.

DEF.189 A conditional transfer or pledge of real property as security for the payment of a debt; also, the document used to create a mortgage lien.

DEF.190 A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

DEF.191 A person, corporation or firm not otherwise in banking and finance that normally provides its own funds for mortgage financing as opposed to savings and loan associations or commercial banks that use other people's money--namely that of their depositors--to originate mortgage loans. Although some mortgage bankers do supply permanent long-term financing, the majority specialize in supplying short-term and interim financing, either through their own resources or by borrowing from commercial sources.

DEF.192 A person or firm that acts as an intermediary between borrower and lender; one who, for compensation or gain, negotiates, sells or arranges loans and sometimes continues to service the loans; also called a loan broker. Loans originated by the mortgage broker are closed in the lender's name and are usually serviced by the lender. This is in contrast to mortgage bankers, who not only close loans in their own names but continue to service them as well. Many mortgage brokers are also licensed as real estate brokers and provide these financing services as supplements to their realty services.

DEF.193 A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

DEF.194 A policy that provides protection for the lender in the case of default. Also may guarantee repayment of the loan in the event of the death or disability of the borrower.

DEF.195 The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA rusted mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

DEF.196 A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

DEF.197 The lender in a loan transaction secured by a mortgage.

DEF.198 An owner of real estate who borrows money and conveys his or her property as security for the loan. The National Association of REALTORS's (NAR) narrative appraisal report is a detailed written presentation of the facts and reasoning behind an appraiser's estimate of value.

DEF.199 The ratio of net operating income to effective gross income.

DEF.200 Income remaining after operating expenses are deducted from effective gross income.

DEF.201 The stated interest rate in a note or contract, which may differ from the true or effective interest rate, especially if the lender discounts the loan and advances less than the full amount.

DEF.202 A once lawful property use that is permitted to continue after a zoning ordinance prohibiting it has been established for the area; a use that differs sharply from the prevailing uses in a neighborhood.

DEF.203 The common real estate practice of showing listed homes to the public during established hours.

DEF.204 An improvement to property that is more than warranted by the property's highest and best use and thus not likely to contribute its cost to the total market value of the property.

DEF.205 Individual ownership of real estate, not to be confused with the use of the word several to mean "more than one"; also called tenancy in severally, sole tenancy or separate ownership.

DEF.206 An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law a partnership is regarded as a group of individuals rather than as a single entity.

DEF.207 A special form of insurance designed to permit lenders to increase their loan-to-market-value ratio, often up to 95 percent of the market value of the property. Many lenders are restricted to 80 percent loans by government regulations, special loss reserve requirements or internal management policies related to mortgage portfolio mix. A lender, however, may lend up to 95 percent of the property value if the excess of the loan amount over 80 percent of value is insured by a private mortgage guaranty insurer. Private mortgage insurance provides protection for the lender when the borrower's down payment is less than 20% of the purchase price.

DEF.208 The formal judicial proceeding to prove or confirm the validity of a will, to collect the assets of the decedent's estate, to pay the debts and taxes and to determine the persons to whom the remainder of the estate is to pass.

DEF.209 An unconditional written promise of one person to pay a certain sum of money to another, or order, or bearer, at a future specified time. A broker who accepts a promissory note as a deposit from a prospective purchaser must generally disclose to the seller that the buyer's deposit is in the form of a promissory note.

DEF.210 A note secured by a mortgage or trust deed given by the buyer, as mortgagor, to the seller, as mortgagee, as part of the purchase price of real estate.

DEF.211 When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure (See Assuming a Mortgage).

DEF.212 Land; a portion of the earth's surface extending downward to the center of the earth and upward into space including fixtures permanently attached thereto by nature or by man, anything incidental or appurtenant to land and anything immovable by law; freehold estate in land.

DEF.213 Any person, partnership, association or corporation that, for a compensation or valuable consideration, sells or offers for sale, buys or offers to buy, or negotiates the purchase, sale or exchange of real estate, or who leases or offers to lease, or rents or offers for rent any real estate or the improvement thereon for others. Such a broker must secure a state license. For a license to be issued to a firm, it is usually required that all active partners or officers be licensed real estate brokers.

DEF.214 A Real Estate Brokerage is a business in which real estate license-related activities are performed under the authority of a real estate broker.

DEF.215 The Real Estate Commissioner is appointed by the governor and serves at the governor's discretion. The commissioner determines administrative policy and enforces that policy in the best interests of those dealing with real estate licensees. The person selected as commissioner must have been a practicing real estate broker in California for five years, or otherwise engaged in real estate activity for five of the past ten years.

DEF.216 Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits to the investors free of corporate income tax.

DEF.217 A federal law, enacted in 1974 and later revised, that ensures that the buyer and seller in a real estate transaction have knowledge of all settlement costs when the purchase of a one-to-four-family residential dwelling is financed by a federally related mortgage loan. Federally related loans are broadly defined to include loans made by savings and loan associations or other lenders whose deposits are insured by federal agencies, insured by the FHA or VA, administered by the Department of Housing and Urban Development or intended to be sold by the lender to Fannie Mae or a similar federal agency.

DEF.218 A registered trade name that may be used only by members of the state and local real estate boards affiliated with the National Association of REALTORS (NAR). The term REALTORS designates a professional who subscribes to associations of REALTORS to govern real estate practices of members of the board. The use of the name REALTORS and the distinctive seal in advertising is strictly governed by the rules and regulations of the national association.

DEF.219 The percentage of a property's original cost that is returned to the owner as income during the remaining economic life of the investment.

DEF.220 To pay off one loan with the proceeds from another. Properties are frequently refinanced when interest rates drop and/or the property has appreciated in value. Sometimes, a buyer will purchase a property by way of a contract for deed with the expectation of either selling the property before the balance under the contract for deed becomes due or refinancing at better terms and interest rates than exist at the time the agreement of sale is entered into.

DEF.221 Lease provision that allows the lessee to renew the lease for the same term or some other stated period, usually with a rent increase at a stated percentage or based on an index or other formula.

DEF.222 Allowances set up for replacement of building and equipment items that have a relatively short life expectancy.

DEF.223 In appraising, the value remaining after all deductions have been made.

DEF.224 Federal agency created by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 to oversee management and liquidation of assets of failed savings and loan associations.

DEF.225 Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land", binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the state where the land is situated. Restrictive covenants that run with the land are a type of encumbrance (See Encumbrances).

DEF.226 An instrument designed to aid elderly homeowners by providing them a monthly income over a period of years in exchange for equity they have acquired in their homes. RAM borrowers typically may obtain up to 80 percent of the appraised value of free-and-clear property.

DEF.227 A loan that is renewed at an established time at then current market interest rates.

DEF.228 A safety clause may be contained in a listing. It provides that a broker is still entitled to a commission for a set period of time after the listing has expired if the property is sold to a prospect of the broker introduced to the property during the period of the listing.

DEF.229 The process of estimating the value of property through examination and comparison of actual sales of comparable properties; also called the direct market comparison or market data approach.

DEF.230 Way of estimating loss in value through depreciation by using sales prices of comparable properties to derive the value of a depreciated item. Also called the market data method and the market extraction method.

DEF.231 A mortgage loan secured by real estate that has previously been made security for an existing mortgage loan. Also called a junior mortgage or junior lien.

DEF.232 A market for the purchase and sale of existing mortgage designed to provide greater liquidity for selling mortgages; also called secondary money market, not to be confused with secondary financing.

DEF.233 As used in the government survey method, a land area of one square mile, or 640 acres. A section is 1/36 of a township.

DEF.234 Money deposited by or for the tenant with the landlord, to be held by the landlord for the following purposes: (1) to remedy tenant defaults for damage to the premises (be it accidental or intentional), for failure to pay rent due or for failure to return keys at the end of the tenancy; (2) to clean the dwelling so as to place it in as fit a condition as when the tenant commenced possession, considering normal wear and tear; and (3) to compensate for damages caused by a tenant who wrongfully quits the dwelling unit.

DEF.235 There are specific additional duties imposed upon the licensee who negotiates a sale of real property when the seller receives a portion of the sales price in the form of a promissory note secured by the real property purchased. This Seller Financing Disclosure Statement is required in a transaction for the purchase of a dwelling for not more than four families where the purchase includes an extension of credit by the seller and where the licensee is acting as an "arranger of credit".

DEF.236 A loan designed for borrowers whose current income is too low to qualify for another type of mortgage. The SAM loan makes the lender and the borrower partners by permitting the lender to share in property appreciation. In return, the borrower receives a lower interest rate.

DEF.237 Deed given by a court to affect the sale of property to satisfy a judgment.

DEF.238 A dwelling which will be owned and occupied by a signatory to the mortgage or deed of trust secured by such dwelling within 90 days of the execution of the mortgage or deed of trust.

DEF.239 Use of a factor by which a property's annual net income may be multiplied to find the present worth of the property over a given period at a given rate of interest.

DEF.240 Land suitable for building purposes, usually improved by the addition of utilities or other services.

DEF.241 Charge against real estate made by a unit of government to cover the proportional cost of an improvement, such as a street or sewer.

DEF.242 A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien.

DEF.243 A method for finding the reproduction cost of a building in which the cost per square foot of a recently built comparable structure is multiplied by the number of square feet in the subject property.

DEF.244 That law pertaining to the period of time within which certain actions must be brought to court. The law is intended to protect the vigilant against stale claims by requiring the prompt assertion of claims; thus an action must be brought (i.e., the complaint filed) within a specified time of the occurrence of the cause of action. After the time period expires, the claim is said to be "outlawed" and may not be enforced in court. The theory behind the statute of limitations is that there must be some end to the possibility of litigation. It is said that stale witnesses and stale records produce little truth and result in accidental justice, if any.

DEF.245 A method of valuing land to be used for subdivision development. It relies on accurate forecasting of market demand, including both forecast absorption (the rate at which properties will sell) and projected gross sales (total income that the project will produce); also called the land development method.

DEF.246 A lease given by a lessee for a portion of the leasehold interest, while the lessee retains some reversionary interest. The sublease may be for all or part of the premises, for the whole term or part of it, as long as the lessor retains some interest in the property. Leases normally contain a clause prohibiting subletting without prior consent of the lessor. The lessee remains directly liable to the lessor for the rent, which is usually paid by the sublessee to the lessee and then from the lessee to the lessor. The sublessee does not have a contractual obligation to pay rent to the original lessor.

DEF.247 (1) to give, pay, or pledge (a sum of money) as a contribution, investment, etc. (2) to append one's signature or mark to (a document), as in approval or attestation of its contents (The Random House Dictionary).

DEF.248 The basic appraisal premise that the market value of real estate is influenced by the cost of acquiring a substitute or comparable property.

DEF.249 A clever trick or strategy used to evade a rule, escape a consequence, hide something, etc.

DEF.250 As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the state. The governing body in turn utilizes the funds in the best interest of the general public.

DEF.251 The instrument used to convey legal title to property sold by a governmental unit for nonpayment of taxes.

DEF.252 A phrase often used to describe some of the tax advantages of real estate or other investments, such as non-cash deductions for cost recovery (depreciation), interest, taxes and postponement or even elimination of certain taxes. The tax shelter not only may offset the investor's tax liability relevant to the real estate investment but also may reduce the investor's other ordinary income, which reduces overall tax liability.

DEF.253 A clause in a lease providing that the lessee will pay any increase in taxes over a base or an initial year's taxes.

DEF.254 One who has possession of real estate; an occupant, not necessarily a renter; the lessee under a lease. The estate or interest held is called a tenancy.

DEF.255 The evidence of a person's right to the ownership and possession of land.

DEF.256 A comprehensive indemnity contract under which a title insurance company warrants to make good a loss arising through defects in title to real estate or any liens or encumbrances thereon. Unlike other types of insurance, which protect a policyholder against loss from some future occurrence (such as a fire or auto accident), title insurance in effect protects a policyholder against loss from some occurrence that has already happened, such as a forged deed somewhere in the chain of title.

DEF.257 Articles of personal property installed by a commercial tenant under the terms of a lease. Trade fixtures are removable by the tenant before the lease expires and are not true fixtures.

DEF.258 The practice of agreeing to buy real estate and then assigning the purchase agreement to another buyer before closing takes place; thus turning a profit by "selling the paper".

DEF.259 A state tax imposed on the transfer or conveyance of Realty or any realty interest by means of deed, lease, sublease, assignment, and contract for deed or similar instrument. One purpose of the tax is to acquire reliable data on the fair market value of the property to help establish more accurate real property tax assessments.

DEF.260 A fiduciary arrangement whereby property is conveyed to a person or an institution, called a trustee, to be held and administered on behalf of another person or entity, called a beneficiary. The one who conveys the trust is called the truster.

DEF.261 An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.

DEF.262 A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs to limit possible loss by the lender.

DEF.263 A government-sponsored mortgage assistance program. Under the Servicemen's Readjustment Act of 1944, eligible veterans and un-remarried widows or widowers of veterans who died in service or from service-connected causes may obtain partially guaranteed loans for the purchase or construction of a house or to refinance existing mortgage debt.

DEF.264 A final inspection of a property just before closing. This assures the buyer that the property has been vacated, that no damage has occurred and that the seller has not taken or substituted any property contrary to the terms of the sales agreement. If damage has occurred, the buyer might ask that funds be withheld at the closing to pay for the repairs.

DEF.265 A method of financing in which the new mortgage is placed in a secondary or subordinate position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. Sometimes called an all-inclusive loan, an overriding loan or an overlapping loan. In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount, without cashing out or disturbing the existence of the first mortgage. The entire loan combines two or more debts and is treated as a single obligation, and the wrap, or secondary, mortgagee pays the obligations of the first mortgage from the total payments received. While the wraparound lender makes the debt service payments on the first mortgage, the lender does not assume liability for this first lien. A default on the wraparound mortgage would usually result in a default on the underlying mortgage.

DEF.266 The regulation of structures and uses of property within designated districts or zones. Zoning regulates and affects such things as use of the land, lot sizes, and types of structure permitted, building heights, setbacks and density (the ratio of land area to improvement area).

DEF.267 Regulation of the character and use of property by a municipality or other government Entity through the exercise of its police power.

DEF.268 In the U.S, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who specialize in supporting the financial needs of individuals and small to medium sized businesses. ABA is the only nationally recognized alternative to the CPA. Most accredited individuals do not perform audits. Generally, they are small business owners themselves. In addition to general accounting work, CPAs are also heavily schooled in performing audits; however, only a small fraction of America's businesses require an audit. In general, a CPA has majored in accounting, passed the CPA examination and is licensed to perform audits. An ABA has majored in accounting, passed the ABA comprehensive examination and in most states is not licensed to perform audits.

DEF.269 The reduction of a gift under will because of insufficiency of assets to satisfy all the gifts after the legal obligations of the estate (debts, taxes, charges, and claims) have been paid in full. The general rule is that all gifts of the same class shall abate proportionately, unless otherwise provided.

DEF.270 A summary of all essential facts relating to the title to a parcel of real property.

DEF.271 A loan contract clause stating that if you are in default, your creditor can demand payment of the entire balance of your loan at once, before its scheduled maturity.

DEF.272 A term commonly used within the advertising business to refer to the corporate entity employing an advertising agency. MJM's account roster includes a wide variety of businesses and service organizations.

DEF.273 A record of a business transaction. When you buy something on credit, the company you are dealing with sets up an "account". This means it sets up a record of what you buy and what you pay. You will do the same thing with any customers to whom you extend credit.

DEF.274 (1) Short-term debts incurred as the result of day-to-day operations. (2) Trade accounts of businesses representing obligations to pay for goods and services received. (3) An account in the general ledger representing the amount owed by the business to its creditors on open purchases of goods and/or services. Accounts payable is money you owe to suppliers and other business creditors as a result of purchases of stock and other expenses such as overheads and taxes.

DEF.275 (1) Monies due your business as the result of day-to-day operations. (2) Trade accounts of businesses representing moneys due for goods sold or services rendered evidenced by notes, statements, invoices or other written evidence of a present obligation. (3) Debts due from customers from sales of products and services, normally a current asset. Accounts receivable is a record of what is owed to you. The records of what each customer owes you taken together are your "accounts receivable".

DEF.276 The amount a company is owed for goods it sold on credit. An account in the general ledger representing the amount due the business from its customers for goods and/or services sold on credit.

DEF.277 Financing where the company's accounts receivables are used as collateral. This type of financing is usually short-term in nature.

DEF.278 A paid public announcement appearing in the media.

DEF.279 Making known; calling public attention to a product, service, or company by means of paid announcements so as to affect perception or arouse consumer desire to make a purchase or take a particular action.

DEF.280 An independent firm that plans, produces, and places advertising for its clients.

DEF.281 Cost of credit expressed as a yearly rate.

DEF.282 A credit arrangement term that applies to the relative cost of credit stated as an annual percentage, i.e. the annual cost of credit.

DEF.283 A report prepared by a business entity at the end of its calendar or fiscal year. It presents a company's financial position and operating results for use by interested parties, including potential investors, creditors, stockholders, and employees.

DEF.284 The dictionary definition is a contract issued by an insurance company that pays an annuitant an amount periodically for a certain time for the remainder of his life. Common usage has expanded that definition to the point where you must dig deeper to understand the meaning. Variations include a deferred annuity where you make payments into a fund over a period of years (where tax on the fund's income is deferred), an immediate annuity (the original definition) or many other plans where a series of payments, either into or out of the fund, are involved.

DEF.285 (1) The evaluation of property. (2) A report made by a qualified person giving an opinion or estimate of value.

DEF.286 The values arrived at in an appraisal of property.

DEF.287 (1) Increase in value of property; opposite to depreciation. (2) The increase in value of an asset. (3) An increase in the value of an item, for instance a home, due to changes in market conditions or other causes.

DEF.288 Restriction of retained earnings that is recorded by a formal journal entry. The restriction may be made voluntarily by the board of directors to show the earnings are being accumulated for a particular purpose or the restriction may be the result of a covenant in a loan agreement.

DEF.289 To authorize. A manager authorizes a transaction by signing a voucher providing approval for the disbursement.

DEF.290 An agreement that is the contract between those individuals starting the corporation or partners in a partnership specifying such items as the name, location, nature of the business, capital investment, etc.

DEF.291 The charter of the corporation, this is the public filing with a state which requests that the corporation be allowed to exist. Along with the corporate By-Laws, it provides details of the organization and structure of the business. They must be consistent with the laws of the state of incorporation.

DEF.292 LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation's articles of incorporation. Business Filings Incorporated prepares the articles as part of its incorporation services.

DEF.293 An audit procedure to determine or to discover with certainty. For example, to ascertain the date on which an investment was purchased by examining source documents.

DEF.294 (1) Anything owned that has monetary value. (2) Anything of worth that is owned. (3) The financial resources of a company (Cash, Accounts Receivable, Inventory, Machinery, Buildings, etc.).

The assets of a business are money in the bank, accounts receivable, securities held in the name of the business, property or buildings, equipment, fixtures, merchandise for sale or being made, supplies and all things of value that the business owns.

Additional Definitions:

DEF.295 Those assets which are not readily convertible into cash. They are most often called fixed assets.

DEF.296 Those assets, generally current assets, which may be quickly converted to cash.

DEF.297 The amount of money remaining in an account. The total of your money in the bank after accounting for all transactions (deposits and withdrawals) is called a "balance".

DEF.298 An important business document that shows what a business owns and owes as of the date shown. Essentially a "balance sheet" is a list of business assets and their cost on one side and a list of liabilities and owners' equity (investment in the business) on the other side with the amount for each. The liabilities include all that the business owes.

A balance sheet is an itemized statement which lists the total assets and the total liabilities of a given business to show its net worth at a given moment in time (like a snapshot).

Additional Definitions:

DEF.299 The final installment on a loan which is greater than the prior payments and pays any remaining amount outstanding under the loan. For example, a loan calls for equal monthly payments of $500, where most of the payment is for interest. At the end of the loan a balloon payment of $100,000 is due. Also a "balloon payment" can be a lump-sum principal payment due during the term of or at the end of a loan. It is substantially larger than the other payments.

DEF.300 A method of determining the point at which the business will neither make a profit nor suffer a loss. This occurs when the dollars of revenues exactly equal the dollars of expenses.

DEF.301 The break-even point in any business is that point at which the volume of sales or revenues exactly equals total expenses -- the point at which there is neither a profit nor loss -- under varying levels of activity.

Additional Definitions:

DEF.302 The number of units that must be sold for the total revenue (from all units sold) to equal the total cost (of all units sold).

DEF.303 See Overage Rent.

DEF.304 Business location or store front in the "real" world.

DEF.305 A loan to provide short-term finance, usually to buy property or land, where the loan is to be cleared by longer-term borrowing, or the sale of assets.

DEF.306 A folded leaflet with an advertising or promotional message.

DEF.307 A middleman that specializes in a particular commodity, represents either a buyer or a seller, and is likely to be hired on a temporary basis. It can also be defined as an agent middleman or wholesaler who arranges title-free sales for his clients or a company or person who arranges, for a fee, purchase or sales or transactions between lessees and lessors of an asset.

DEF.308 The browser is the decoding lens-think of it as 3-D glasses that allows you to look at a Website and see words and images, instead of software code, usually HTML (hypertext markup language). Recent versions of browsers also support more advanced technologies such as streaming video and audio. Microsoft's Internet Explorer/EDGE, Google Chrome and Mozilla Firefox are the three biggest names in today's browser market.

DEF.309 An estimate of expenses and revenue required. A financial statement that projects income and/or expenditures over a specified future period.

DEF.310 The process of analyzing all business functions and the effect that a specific disaster may have upon them.

DEF.311 The insurance company agrees to pay your loss of business income that results in a suspension of your business operations because of damage to your building or personal property caused by a covered cause of loss insured in your property policy. Business Income includes net profit or loss that would have been earned if the suspension of operations had not occurred and normal operating expenses including payroll that would have continued during the suspension. Coverage begins with the date of the loss to your property and ends when the damage or destroyed property could have been restored with reasonable speed and like quality.

DEF.312 A written review of the business to identify strengths and weaknesses, locate needs, and begin planning how to best accomplish the business' objectives, or a carefully constructed guide for the person starting a business.

DEF.313 A product bought for resale, for making other products, or for use in a firm’s operations.

DEF.314 Written and unwritten standards of conduct expected by certain groups, especially professional groups, in pursuit of their specialized activities.

DEF.315 The amount of products or services that an organization can produce in a given time.

DEF.316 (1) Assets less liabilities, representing the ownership interest in a business. (2) a stock of accumulated goods, especially at a specified time and in contrast to income received during a specified time period. (3) accumulated goods devoted to the product capital (4) Money needed to start or grow a business. This pool can come from securities offerings and retained earnings.

DEF.317 An asset that is purchased for long-term use such as machinery and equipment.

DEF.318 (1) Shows plans for buying long-term assets—machinery and other things you expect to last several years—and estimates the costs of those purchases. (2) A financial statement that estimates a firm’s expenditures for major assets and its long-term financing needs.

DEF.319 The payback period is the ratio of the initial investment (cash outlay, regardless of the source of the cash) to the annual cash inflows for the recovery period. The major shortcoming for the payback period method is that it does not take into account cash flows after the payback period and is therefore not a measure of the profitability of an investment project. For this reason, analysts generally prefer the DISCOUNTED CASH FLOW methods of capital budgeting; primarily, the INTERNAL RATE OF RETURN and the NET PRESENT VALUE methods.

DEF.320 (1) The sources of funds and the uses of funds for a business during a specified time frame. (2) The movement of money into and out of a business as it sells products and services and pays expenses. (3) The transfer of monies into and out of an enterprise. (4) Generally refers to the difference between cash receipts and disbursements over a specific period of time. (5) The flow of internal funds generated within the business as a result of receipts from debtors, payments to creditors, drawings and cash sales. (6) The movement of money into and out of an organization.

DEF.321 (1) All dollar amounts received by or paid by the business. (2) All monetary flows into or out of the business.

DEF.322 An estimate into the future of how cash will move through the business during a period of time. Based on analysis of past operating experience, payment of obligations, and collection of receivables. This experience is applied to budgeted sales and costs for a future periodic in order to allow for repayment of loan obligations and to assure adequate working capital from earned income. Cash flow forecasts provide a fundamental financial-management tool for planning cash needs and ensuring adequate liquidity.

DEF.323 Cash flows related to the use of credit by the business as it prepares for, engages in, or terminates business activities. NOTE: These "cash flows" include both debt extensions and debt repayments during the subject accounting period.

DEF.324 Cash flows from transactions involving purchases and sales of productive assets and the debt and equity instruments of other firms.

DEF.325 Cash flows from day-to-day, income-producing activities of the firm.

DEF.326 An organization that employs an advertising agency to create advertisements. Motto Advertising helps its clients become rich beyond the dreams of avarice.

DEF.327 The client/server relationship is best defined as one computer program (the client) requesting information from another computer program (the server), and the server responding by fulfilling the request. In the client/server model, when you request a bank balance electronically, your request is forwarded by the client program and, at the bank end, received and processed by the server program. Originally, the term applied to network computing in the days when PCs were hooked up to one large mainframe computer, but the Internet has overturned the conventional client/server model, which requires specialized software at both ends. Now your Web browser is the client program, and the Web server that houses the Web pages is the recipient of that request. Today, with the advent of powerful individual workstations, most computers can act as both client and server in different situations, particularly when networked together. This scenario is often described as "n-tier computing", where "n" refers to the multiple levels of clients and servers that now exist.

DEF.328 Corporation with less than 50 shareholders and which has elected to be treated as a close corporation. Stock is owned by relatively few people and is not sold to the general public. A corporation that possesses the following traits: small number of shareholders; no ready market for the corporation's stock; and substantial participation by the majority shareholders in the management of the corporation. Not all states have close corporation statutes. (For information regarding close corporations, please consult a competent attorney).

DEF.329 Any loan for which funds have been disbursed, and all required documentation has been executed, received and reviewed. For statistical purposes, first or total disbursement is counted as a closed loan.

DEF.330 (1) Property that secures debt payment that the borrower pledges to the creditor. Collateral recovers all or part of a debt, if repayment of the loan is not forthcoming. (2) Something of value - securities, evidence of deposit or other property - pledged to support the repayment of an obligation. (3) An asset that can be sold for cash and which has been pledged to a creditor to secure a future obligation. (For example, if you finance a car it is the collateral for the loan).

Additional Definitions:

DEF.331 A legal document covering the item(s) pledged as collateral on a loan, e.g., note, mortgages, assignment, etc.

DEF.332 To pledge mortgages, bonds, accounts receivable or other marketable properties as security for a loan.

DEF.333 To pledge property as security (collateral) for a debt.

DEF.334 Bank in the buyer's country that participates in a collection. The collecting bank may or may not also be the presenting bank, who presents documents.

DEF.335 Trading method in which the banking system acts on behalf of the seller, presenting documents to the buyer and only releasing them upon payment (or upon acceptance of a term bill).

DEF.336 These may be incurred unintentionally if the goods arrive before the buyer has received the document of title.

DEF.337 In a collection, the document in which the seller instructs the banks as to how the collection is to be conducted.

DEF.338 (1) The process by which labor leaders and management iron out agreements on pay and working conditions. (2) The process of negotiating a labor contract with management.

DEF.339 A secret agreement between two or more parties for fraud or deceit.

DEF.340 Interest earned on previously accumulated interest plus the original principal. Most spread sheets can calculate this easily for you but for the curious, the formula is C = P(1 + r/n)n, where C=compound amount, P=original principal, r=annual interest rate, n=total number of periods over which interest is compounded.

DEF.341 The period of time for which interest is computed.

DEF.342 A complete set of rules other than U.S. GAAP applied to all items in a set of financial statements. Examples include a basis of accounting required by a regulatory agency, a basis of accounting the entity uses for its income tax return and the cash receipts and disbursements basis.

DEF.343 The settlement of a claim resulting from a defaulted loan for less than the full amount due.

DEF.344 A procedure available for use only in instances where the government cannot collect the full amount due within a reasonable time, by information.

DEF.345 Internal controls performed by computer (software controls) as opposed to manual controls. Also means general and application controls over the computer processing of data.

DEF.346 A legally enforceable agreement between two (or more) competent parties who each promise to perform in some way or to do, or not to do, a particular thing. Contracts can be complex and should always be reviewed by an attorney. A contract may not be binding if not correctly drafted and executed.

DEF.347 Purchasing, renting, leasing, or otherwise obtaining supplies or services from nonfederal sources. Contracting includes the description of supplies and services required, the selection and solicitation of sources, the preparation and award of contracts.

DEF.348 A person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings.

DEF.349 The stated, or nominal, interest rate in a contract.

DEF.350 An arrangement in which (a) two or more companies form a partnership or joint venture to act as potential prime contractor; or (b) an agreement by a potential prime contractor with one or more other companies to have them act as its subcontractors under (a).

DEF.351 The practice of a national brand subsidizing local advertising costs incurred by a company that sells its product. Typically, the national brand has stringent rules about the advertisement in which the product appears. SUN, Pepsi, and Cadillac are just a few of the thousands of brands that make co-op dollars available.

DEF.352 An arrangement whereby a manufacturer agrees to pay a certain amount of the retailer’s media cost for advertising the manufacturer’s product.

DEF.353 A company’s name, logo, typeface, colors, slogan, etc., are elements that help comprise its corporate identity. Motto Advertising has produced effective corporate identity packages for many new and long-established organizations.

DEF.354 A "corporate image" ad is designed to primarily promote the enterprise and secondarily promote the products or services of the enterprise.

DEF.355 The chairman of the board, president, executive vice presidents, corporate secretary and treasurer, or any other top executive appointed by the board of directors.

DEF.356 Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book which contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.

DEF.357 (1) A form of business organization that may have many owners. Each owner is liable only to the extent of the investment. It is an artificial entity established by the state. (2) A business owned by shareholders. (3) A group of persons granted a state charter legally recognizing them as a separate entity having its own rights, privileges, and liabilities distinct from those of its members. (4) A type of business organization chartered by a state and given many of the legal rights as a separate entity. Ownership is represented by transferable shares of stock. (5) An artificial person created by law, with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts.

The process of incorporating should be completed with the state's secretary of Corporation. A legal entity created under the laws of a state to carry on some business or other authorized activity. The principal distinction between a business corporation and other forms of business organization (i.e., proprietorship or partnership) is the fact that the liability of the owners is limited to the capital of the subject corporation.

DEF.358 Overseas bank with whom a bank account has relationships (nostro-vostro accounts) and arrangements for authentication of communications.

DEF.359 To strengthen with other evidence, to make more certain.

DEF.360 Any person that signs along with the maker of a loan or credit obligation, thus becoming responsible if the maker defaults.

DEF.361 People whom together share responsibility on behalf of a business by jointly signing documents or cheques.

DEF.362 Inco-term. Seller pays transport costs to named destination, but not insurance.

DEF.363 An appraisal method that values a property based on the cost to reproduce it today. That amount is usually adjusted for depreciation.

DEF.364 (1) The amount determined by subtracting the value of the ending merchandise inventory from the sum of the beginning merchandise inventory and the net purchases for the fiscal period. (2) Determined for the period by counting the merchandise left at the end of the period (physical inventory) and subtracting its cost from the total cost of merchandise available for sale.

DEF.365 (1) The direct costs involved in producing a product or service which usually includes labor and materials. (2) How much it cost the seller to make or buy the goods sold. Same as "cost of sales". (3) The total cost to the business of the goods sold during an accounting period. In its simplest form this is the sum of the opening stock plus all purchases less the closing stock. (4) The dollar amount equal to beginning inventory plus net purchases less ending inventory.

DEF.366 The cost of goods plus the expenses involved in selling and delivering the product or service.

DEF.367 The cost of advertising per thousand potential customers reached by a given publication, broadcast, or outdoor advertisement. This figure is often used in media planning.

DEF.368 Inco-term. Seller pays transport costs and insurance to named destination.

DEF.369 A balance sheet in which asset values are entered at cost or cost less depreciation, amortization, or depletion (as appropriate to the type of asset). Also called a book-value balance sheet.

DEF.370 A type of raise workers can get to reflect the higher cost of consumer goods. Also a sort of corporate hardship pay for employees sent to live and work in expensive places.

DEF.371 Money obligated for goods and services received during a given period of time, regardless of when ordered or whether paid for.

DEF.372 Another name for back-to-back letter of credit.

DEF.373 The sale of goods or services that are paid for in whole or part by the transfer of goods or services from a foreign country.

DEF.374 An international barter transaction.

DEF.375 (1) An entry on the right side of a ledger account. (2) Immediate purchasing power that is exchanged for a promise to repay borrowed money, with or without interest, at a later date.

DEF.376 (1) A grade assigned to a business concern to denote the net worth and credit standing to which the concern is entitled in the opinion of the rating agency as a result of its investigation. (2) An evaluation of your qualifications to receive credit, based largely on your past credit history.

DEF.377 (1) A listing of an individual or company's history of repaying past loans and other liabilities. (2) A report given by a credit-reporting agency about your credit worthiness based on your present financial condition, experience and past credit history.

DEF.378 Insurance that covers the risk of nonpayment for delivered goods.

DEF.379 A financial institution that accepts deposits from, and lends money to, only those people who are its members.

DEF.380 A person or business to whom money is owed.

DEF.381 A violation of a public law.

DEF.382 (1) Those assets of a company that are expected to be converted to cash, sold, or consumed during the normal operating cycle of the business (usually one year). Examples are cash, accounts receivable, short-term investments, US government bonds, inventories, and prepaid expenses. (2) Current assets Cash and other assets that normally will be sold or used up within one year. Categories include: cash, marketable securities (value is lower of cost or current market), receivables, inventories, prepaid expenses, and time deposits that mature within the accounting period.

Additional Definitions:

DEF.383 (1) Debts and other amounts owed to creditors by the business entity due within one year. Includes wages payable, accounts payable, dividends payable, taxes payable, and so forth. (2) Debts or accrued amounts owed that are to be paid within a year. Current liability categories include: accounts payable, notes payable, taxes payable, current portion of principal on intermediate-term or long-term debt, cash dividends payable, accrued interest and other accrued liabilities.

Additional Definitions:

DEF.384 All debts incurred in the normal day-to-day business and due within one calendar year.

DEF.385 (1) A ratio which indicates a business' ability to pay current liabilities as they become due. It is calculated as the ratio of current assets to current liabilities. (2) A liquidity ratio measuring the ability of a business to pay its current obligations when due. The current ratio is calculated by dividing total current assets by total current liabilities. Most managers and lenders want the current ratio to be 2.00 or greater.

Additional Definitions:

DEF.386 The process of assessing damage, following a disaster, to computer hardware, vital records, office facilities, etc. and determining what can be salvaged or restored and what must be replaced.

DEF.387 A monetary settlement awarded to a party that is injured through a breach of contract.

DEF.388 Creating files on your site for dynamic data - information that changes frequently in response to user input (i.e. password accounts, order forms connected to inventory etc.). Sometimes requires custom programming such as Active Server Scripts, CCI, PHP or Java Scripts. However, the desired data should be served to your visitors seamlessly, on demand.

DEF.389 (1) This is financing in which you get a loan from someone or somewhere and go into debt! You are obligated to repay the money at some predetermined interest rate. (2) Financing through borrowing capital that must be repaid.

DEF.390 A generic term representing any written promise to repay the debt.

DEF.391 A solvency ratio measuring the total debt level of a business. The debt ratio is calculated by dividing total liabilities by total liabilities plus net worth. Values greater than 1.0 indicate the business has negative net worth (is insolvent).

DEF.392 (1) The regular payments required to keep a loan current. (2) The cash required to pay the interest and principal due (usually during one year) on outstanding debt.

DEF.393 The borrower's annual net operating income before debt service and taxes divided by the annual debt service. A measure of how safe the loan is to the lender.

DEF.394 If you borrow money, buy something on credit or receive more money on an account than is owed, you have a "debt".

DEF.395 A measure of long-term financial solvency of a firm showing the relationship between borrowed capital and owner's equity. Debt/Equity ratio is calculated by taking long-term debt and dividing it by Total Equity. A high ratio might indicate room for capital expansion.

DEF.396 A method of financing by borrowing money; a loan that must be repaid, such as a bank loan.

DEF.397 A person or business who owes money.

DEF.398 Total liabilities divided by total shareholders' equity. This is measure of the cushion available to creditors should the firm be forced to liquidate. The ratio is sometimes calculated by dividing total long-term debt by shareholders' equity.

DEF.399 Also debt-equity ratio. To get it, you divide liabilities by stockholders’ equity. This is a general measure of how safe creditors can feel about their loans. Creditors often avoid lending to companies with a high debt-equity ratio.

DEF.400 A financial ratio calculated by dividing total liabilities by owners’ equity.

DEF.401 An organization in which management consciously attempts to spread authority widely in the lower levels of the organization.

DEF.402 The act of choosing one alternative from among a set of alternatives.

DEF.403 A role that involves various aspects of management decision making.

DEF.404 A one-time fee, charged by an Alternate Facility provider, to a customer who declares a disaster. SIMILAR TERMS: Notification Fee. NOTE: Some recovery vendors apply the declaration fee against the first few days of recovery.

DEF.405 The decreasing amount you owe on a debt as you wake installment payments.

DEF.406 A pre-established point to point communication link between computer terminals and a computer processor, or between distributed processors that does not require dial-up access.

DEF.407 An item or expenditure subtracted from adjusted gross income to reduce the amount of income subject to tax.

DEF.408 A written document by which the ownership of real property is transferred from one person or organization to another.

DEF.409 The delivery of an asset's title to the lender when the loan is in default. The approach may benefit both parties by avoiding the expenses associated with foreclosure and the stigma of foreclosure. CAUTION: For tax purposes, the transaction is the same as a sale.

DEF.410 A banking arrangement between the beneficiary of a letter of credit and a third party - usually the supplier of the goods - who requires an assurance.

DEF.411 Document evidencing that a protest has been carried out.

DEF.412 A document under seal which, when delivered, transfers a present interest in property. May be held as collateral.

DEF.413 A bond where the market price is less than 20% or so of its face value. Like a zero coupon bond, the market price of a deep discount bond will rise faster when interest rates fall and drop faster when interest rates rise than a bond that is selling close to its face value.

DEF.414 A call option whose exercise price is well below the market price of the underlying stock (deep in the money) or well above the market price (deep out of the money). Thus, the premium associated with buying a deep-in-the-money call option is high.

DEF.415 (1) The failure of a debtor to comply with a provision of a bond indenture or loan agreement (commonly known as a technical default) or to make timely payment of interest or principal when due. (2) To fail to meet an obligation when due, such as paying a debt. (3) Failure to pay a debt when due or otherwise failing to comply with an essential term of a loan payment. (4) The nonpayment of principal and/or interest on the due date as provided by the terms and conditions of the note.

DEF.416 To misuse or embezzle funds.

DEF.417 In corporate finance it is generally the discharge of old, low-rate debt without repayment prior to maturity. The corporation replaces it with newly issued securities with a lower face value buy paying higher interest or having a higher market value. The technique can result in tax and balance sheet advantages.

DEF.418 The costs incurred, in addition to fixed costs, as a result of manufacturing a product or providing a service. Direct costs are made up of direct material, direct labor and direct manufacturing or servicing costs.

DEF.419 A non-leveraged lease by a lessor (not a manufacturer or dealer) in which the lease meets many of the definitional criteria of a capital lease, plus certain additional criteria.

DEF.420 A marketing effort conducted exclusively by mail.

DEF.421 (1) Marketing via leaflets, brochures, letters, catalogs, or print ads mailed or distributed directly to current and potential consumers. (2) The use of the telephone and non-personal media to introduce products to consumers, who can then purchase them by mail or telephone. The direct marketing industry has grown enormously as a result of increasingly specialized mailing lists.

DEF.422 Costs directly associated with the manufacture of goods. That could include factory lighting, rent, and insurance. Indirect overhead could include office expenses, R&D, lighting, etc.

DEF.423 Also known as a private placement, the sale of securities directly to one or more professional investors or institutions, frequently insurance companies. The sale of securities in this fashion avoids many of the fees typically associated with public offerings.

DEF.424 An advertising technique that urges the audience to respond in a particular manner, usually to buy a product, and provides that audience with the means to do so. A business reply card (BRC) is a direct response tool.

DEF.425 Selling direct to the end user with promotional efforts using advertising, direct mail or telephone sales.

DEF.426 The marketing of products to ultimate consumers through face-to-face sales presentations at home or in the workplace.

DEF.427 Disposable personal income less amount spent for necessities such as food, shelter, medical expenses, etc.

DEF.428 Individual "after-tax" income.

DEF.429 A "DBA", also known as an "assumed name", is typically completed by making a filing at the county level where the business is located. This filing does not change the official name of the corporation; however, it allows the company to use additional names.

DEF.430 A unique name assigned to a numerical address that identifies your site on the World Wide Web.

DEF.431 A corporation in the state in which it is incorporated.

DEF.432 A method of manufacturing in which an entrepreneur distributed raw materials to various homes, where families would process them into finished goods to be offered for sale by the merchant entrepreneur.

DEF.433 Interactive marketing that is a hybrid of television advertising and online media. Instead of just flashing up the Website address, the television commercial sends consumers to a Website for a specific activity: to view alternative endings for the spot, provide input on how the script evolves, order free customized CDs, etc.

DEF.434 Treated as a separate legal taxable entity for income tax purposes. Therefore, these corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities which are not subject to the double tax.

DEF.435 A system in which each financial transaction is recorded as two separate accounting entries to maintain the balance shown in the accounting equation.

DEF.436 (1) Income realized by the provisioning of goods and services. (2) Income earned by working for it. Interest, dividends and other kinds of profits are examples of unearned income.

DEF.437 The profits of an enterprise that remain undistributed and which have been made through the regular operations of the enterprise.

DEF.438 The demonstrated ability of a business to earn a profit, over time, while following good accounting practices. When a business shows a reasonable profit on invested capital after fully maintaining the business property, appropriately compensating it’s owned.

DEF.439 Allows for a book value analysis that adjusts the assets to their market value. This valuation allows valuation of goodwill, real estate, inventories and other assets at their market value.

DEF.440 An organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies.

DEF.441 The period of time during which an asset will have economic value and be usable.

DEF.442 The view that society will benefit most when business is left alone to produce and market profitable products that society needs.

DEF.443 The most economical quantity to purchase, balancing ordering costs with carrying costs.

DEF.444 The value of an asset deriving from its ability to generate income.

DEF.445 Measures the difference between the return on a company’s capital and the cost of that capital. A positive EVA indicates that value has been created for shareholders; a negative EVA signifies value destruction.

DEF.446 The study of how wealth is created and distributed.

DEF.447 Efficiencies associated with larger-scale operations. For example, it might cost a manufacturer $100 to manufacture one unit, $180 for two units, $240 for three units, and so on, such that the average cost per unit decreases as production volume increases.

DEF.448 The system through which a society answers the two economic questions—how wealth is created and distributed.

DEF.449 The use of communication between an entity and customers or suppliers to transact business electronically. Purchase, shipping, billing, cash receipt, and cash disbursements can be completed entirely by exchanging electronic messages.

DEF.450 Reasonableness, validity, limit, and completeness tests that are programmed routines designed to check input data and processing results for completeness, accuracy and reasonableness.

DEF.451 Processing of information by computer as opposed to handwritten records.

DEF.452 The income tax provision (expense) shown on an income statement divided by the pretax income. This differs from the statutory rate because of deductions, credits, and exclusions.

DEF.453 Reasonable assurance that the entity’s operational objectives are achieved, that published financial statements are reliably prepared and applicable laws and regulations are complied with.

DEF.454 The effective rate (to the lessee) of cash flows resulting from a lease transaction. To compare this rate with a loan interest rate, a company must include in the cash flows any effect the transactions have on federal tax liabilities.

DEF.455 Producing a desired outcome. An audit procedure is effective if the evidence supports a correct conclusion.

DEF.456 The ratio of the audit evidence produced to audit resources used.

DEF.457 A measure of a company's value. Enterprise value is calculated by: market capitalization plus debt and preferred shares minus cash and cash equivalents. In effect, enterprise value is the theoretical takeover price, i.e., in the event of a buyout an acquirer would have to take on the company's debt but would pocket its cash.

DEF.458 A depressed neighborhood, usually in an urban area, where businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new business in the zone.

DEF.459 (1) An individual (sole trader), partnership, a body corporate, a corporation, an incorporated association oi body of persons, a trust or superannuation fund. (2) A partnership, corporation, LLC, S corporation, trust, estate, or joint venture of any kind recognized for tax purposes. (3) In business, a separate or self-contained existence that provides goods or services.

DEF.460 The concept that financial accounting and reporting relates only to the activities of a specific business entity and not to the activities of the owners of that entity.

DEF.461 (1) The person who assumes the financial risk of the initiation, operation and management of a given business or undertaking. He/She is primarily a financial and/or professional risk taker almost to the extreme. (2) A person who assumes the financial risks associated with the start-up, operation, and management of a business. (3) A person who risks time, effort, and money to start and operate a business. (4) A person who organizes and manages a business, but usually only applied to people who have shown exceptional ability and imagination in launching and succeeding with new business ventures. (5) Someone who is willing to assume the responsibility, risk and rewards of starting and operating a business. (6) An individual who organizes and owns a business for the purpose of creating long-term wealth. The responsibility and risk associated with the business is also the entrepreneur's.

DEF.462 The control environment is the attitude, awareness, and actions of the board, management, owners, and others about the importance of control. This includes integrity and ethical rules, commitment to competence, board or audit committee participation, organizational structure, assignment of authority and responsibility, and human resource policies and practices.

DEF.463 The federal agency charged with enforcing laws designed to protect the environment.

DEF.464 The amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of common stock outstanding during the period.

DEF.465 A government agency with power to investigate complaints of employment discrimination and power to sue firms that practice it.

DEF.466 A loan used for the purchase of capital equipment.

DEF.467 A document that describes in detail the equipment being leased or purchased. For a lease, it may also state the lease term, commencement date, repayment schedule and location of the equipment.

DEF.468 Stocks and shares invested in a business and not bearing fixed interest.

DEF.469 (1) The difference between the market value of a property and the outstanding mortgage balance. (2) The value of an enterprise or property that is owned; the actual value of the owner's financial interest in an enterprise. An accounting term used to describe the net investment of owners or stockholders in a business. Under the accounting equation, equity also represents the result of assets less liabilities.

Additional Definitions:

DEF.470 (1) A form of financing where equity in a business is sold to private investors. (2) Money provided by the business owner/s to finance the business. (3) Money received from the owners or from the sale of shares of ownership in the business.

DEF.471 The provision of funds for capital or operating expenses in exchange for capital stock, stock purchase warrants and options in the business financed, without any guaranteed return, but with the opportunity to share in the company's profits. Selling partial ownership in the business to raise capital. This involves "selling" a portion of your company to an outside investor. You have no obligation to repay the funds. In general, venture capital firms provide this type of funding.

DEF.472 The owner participant, trustor owner, or grantor owner.

DEF.473 A limited partnership arrangement for providing start-up and seed capital to businesses.

DEF.474 A theory of motivation based on the premise that people are motivated to obtain and preserve equitable treatment for themselves.

DEF.475 Unintentional misstatements or omissions in financial statements. Errors may involve mistakes in gathering or processing accounting data, incorrect estimates from oversight or misinterpretation of facts, and mistakes in application of principles relating to amount, classification, presentation or disclosure.

DEF.476 (1) Temporary monetary deposit with an independent third party by agreement between two parties. The escrow money is released when certain agreed conditions have been met. (2) An account established to monitor the repayment of an owner-financed type of contract while holding the transfer document — sometimes known as a contract-collections loan. These accounts can be bought, sold or used as collateral for bank-held loans.

DEF.477 (1) The daily costs incurred in running and maintaining a business. (2) Costs incurred by a business in earning income, for example, rent, advertising, wages etc. (3) Cost incurred for business purposes during an accounting period (Costs incurred in connection with earning revenues). (4) Costs incurred in operating a business.

DEF.478 Insurance premiums in such a system are based on the insured's past experience.

DEF.479 The date when a letter of credit is no longer valid - e.g., the date beyond which it cannot be used.

DEF.480 A paragraph added to an audit report to explain something, such as the reason for a qualified or adverse opinion.

DEF.481 Fully and clearly expressed, leaving nothing implied.

DEF.482 (1) The price at which a willing seller will sell and a willing buyer will buy, in an arms-length transaction, when neither is under compulsion to sell or buy and both have reasonable knowledge of relevant facts. (2) The price at which an item can be sold by a willing seller to a willing buyer, neither of which are under any pressure to buy or sell. It is assumed that both parties are dealing rationally, have knowledge of relevant facts, and are not related.

DEF.483 The strategy in which a firm uses the same brand for all or most of its products.

DEF.484 Exists when one investment company manages a group of mutual funds.

DEF.485 (1) An organization that sets GAAP in the United States for federal government entities. (2) A non-government private organization that sets GAAP in the United States for profit making entities and not-for-profit non-governmental organizations.

DEF.486 A child of the Great Depression, this independent federal agency is supposed to inspire confidence in banks. It insures deposits up to $100,000 in member commercial banks, so depositors can get their money back if a bank goes belly up.

DEF.487 (1) Group of banks that regulate the U.S. money supply, sets rules designed to keep commercial and savings banks solvent and provides emergency loans to those banks. Overseen by a board appointed by U.S. presidents. The chairman of that board is very powerful, and his actions are closely watched by investors. (2) The central bank of the United States that is responsible for regulation of the banking industry.

DEF.488 This is a number assigned to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts. The federal tax identification number is also known as the Employer Identification Number (EIN).

DEF.489 A five-member committee charged with the responsibility of investigating illegal trade practices and enforcing antitrust laws.

DEF.490 Law that established the Federal Trade Commission to enforce antitrust rules. The act gave the FTC the right to define unfair methods of competition and make rules to prevent such practices.

DEF.491 (1) Social security taxes (for both old-age, survivors and disability insurance OASDI and MEDICARE). (2) The U.S. law requiring U.S. employers to match the amount of Social Security tax deducted from an employee's paycheck.

DEF.492 Often referred to as a DBA, "Doing Business As," a fictitious name is frequently used by sole proprietors or partnerships to provide a name, other than those of the owners or partners, under which the business will operate.

DEF.493 (1) A bond which pays an employer up to an amount stated in the bond for losses caused by dishonesty or infidelity on the part of an employee. (2) An insurance policy that protects a business from theft, forgery, or embezzlement by its employees.

DEF.494 Insurance against losses resulting from the dishonesty of employee(s).

DEF.495 A person legally appointed and authorized to hold assets in trust for another person and manage those assets for the benefit of that person.

DEF.496 Analysis of a company's financial statement, usually by accountants or financial analysts.

DEF.497 A document relating to payment. The bill of exchange is the financial document most commonly used in collections and letters of credit. Promissory notes are also sometimes used in collections.

DEF.498 Present expected future financial position, results of operations, and cash flows based on expected conditions.

DEF.499 A confirmation sent to the client's bank or other financial institution asking the bank to confirm direct to the auditor information about balances at a particular date.

DEF.500 Are a method of comparison not dependent on the size of either firm. Financial Ratios provide a broader basis for comparison than do raw numbers. In the Venture-Line database the comparison is conducted against the industry (NAICS Code) in which each particular listing is associated.

DEF.501 (1) Any twelve-month period used by a business as its fiscal accounting period. (2) A business' reporting year, covering a 12-month period (Not necessarily ending on December 31.). FISCAL YEAR is the declared accounting year for a company, but it is not necessarily in conformance to a calendar year (January through December). It does however; cover twelve months, 52 weeks, 365 days. For example, the U.S. government fiscal year ends September 30, i.e. October 1 through September 30 is their fiscal or accounting year.

DEF.502 Measures management's ability to generate revenues from investments in fixed assets. FAT considers only the firm's investment in property, plant and equipment and is extremely important in high asset firms such as manufacturers and telecommunications companies. Generally, the higher this ratio: the smaller the investment required generating sales, thus the more profitable the firm. Indicates the firm has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the firm has over-invested in plant, equipment, or other fixed assets.

DEF.503 Those assets of a permanent nature required for the normal conduct of a business, and which will not normally be converted into cash during the ensuring fiscal period. For example, furniture, fixtures, land, and buildings are all fixed assets. However, accounts receivable and inventory are not. These are usually non-liquid assets that are integral to the enterprise's day-to-day business operations that will be held or used for a period longer than one year.

Additional Definitions:

DEF.504 All property, plant, leasehold improvements and equipment, net of accumulated depreciation or depletion.

DEF.505 Measures liquidity by comparing "fixed" assets with "fixed" capital. A lower ratio indicates proportionately smaller investment and a better "cushion" for creditors in case of liquidation. This may be important if the fixed assets are not easily used in other businesses. The presence of substantial leased fixed assets (not shown on the balance sheet) may deceptively lower this ratio. Therefore smaller is better, i.e., greater than .75 (75%) should merit caution.

DEF.506 A franchise is a form of licensing. The franchises provides his services through a series of franchisees. Before investing in any franchise, check with the International Franchise Association at 1-800-543-1038 to see if the franchise is a member in good standing.

DEF.507 A license to operate an individually owned business as though it were part of a chain of outlets or stores.

DEF.508 A business that has been licensed to sell the product of a manufacturer or to offer a particular service in a given area.

DEF.509 (1) The purchaser of a franchise license who operates one or more outlets of the franchise business. (2) A person or organization purchasing a franchise.

DEF.510 Affiliated dealers for distribution of products, services or methods in franchising obtained by franchiser.

DEF.511 A tax on the privilege of carrying on business as a corporation or LLC in a state. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock, or by amount of business done. In some states, like California, the franchise tax is simply an income tax.

DEF.512 Net income plus non-cash charges to income, specifically depreciation and amortization less capital expenditures, to sustain the basic business.

DEF.513 The system of business in which individuals are free to decide what to produce, how to produce it, and at what price to sell it.

DEF.514 An area, usually a port of entry, designated by the country for duty-free entry of goods. As long as the goods do not go into the country from the FTZ, no duty is assessed. While in the FTZ, goods may be processed, packaged, serviced or displayed.

DEF.515 (1) A business co-owned by two or more general partners who are liable for everything the business does. (2) One or more partners who are jointly and severally responsible or liable for the debts of the partnership.

DEF.516 Net sales minus cost of goods sold.

DEF.517 The gross margin from an income statement divided by net sales revenue.

DEF.518 A measure of a nation's aggregate economic output. Since 1991 GDP, a slightly different calculation, has replaced GNP as a measure of U.S. economic output. GDP is a key indicator of an economy’s health; it’s the value of all the goods and services produced by a country in a given period of time.

DEF.519 (1) Revenues less cost of sales. (2) The excess of net operating revenues (sales less discounts and returns) over the net cost of goods sold (cost of purchases less discounts and returns). (3) Sales revenue minus the cost of making or buying the things that were sold (cost of goods sold). If a manufacturer sold 10 bikes for $300 apiece, and each bike cost him $250 to make, the company’s gross profit is $500.

Also known as gross margin is determined by subtracting cost of goods from net sales.

Additional Definitions:

DEF.520 One of the key performance indicators. The gross profit margin gives an indication on whether the average markup on goods and services is sufficient to cover expenses and make a profit. GPM shows the relationship between sales and the direct cost of products/services sold. It measures the ability of both to control costs and to pass along price increases through sales to customers. The gross profit margin should be stable over time. A persistent gradual decrease is likely to indicate that productivity needs to be increased to return profitability back to previous levels.

DEF.521 Income received from one's business. Examples of documents that show gross receipts include cash register tapes, bank deposit slips, invoices, receipt books, charge slips, and Form 1099-MISC.

DEF.522 That portion of cost that is indirectly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. rent, utilities, equipment maintenance, etc.

DEF.523 The strategy in which a firm uses a different brand for each of its products.

DEF.524 A retirement investing tool for employed individuals that allows an annual contribution of 100% of earned income up to a maximum of $2,000. Some or all of the contribution may be deductible from current taxes, depending on the individual's adjusted gross, whether covered by a company retirement plan, and whether adjusted gross income is low enough. IRAs accumulate money tax-deferred.

DEF.525 Training for new employees regarding conditions of service, physical layout of the workplace, safety rules, local conventions and customs and supervisory procedures.

DEF.526 An all-risk or specific peril type of insurance for manufacturers or businesses engaged in processing.

DEF.527 A tax-exempt bond issued by a state or local government agency to finance industrial or commercial projects that serve a public good. The bond usually is not backed by the full faith and credit of the government that issues it, but is repaid. In other words, it favors corporations.

DEF.528 An organization of both skilled and unskilled workers in a single industry.

DEF.529 The standard or "average" percentage of expenses spent by firms in a similar type of business (e.g., firms in the same industry).

DEF.530 A tax credit in the United States that allows businesses to write-off a portion of the cost of purchasing equipment for business use.

DEF.531 A company that has some features of a corporation and some features of a partnership. This type of company has access to the liquidity and financial reserves of stock markets as a corporation, however, as in a partnership; the stockholders are liable for company debts and have additional restrictions of a partnership.

DEF.532 The cooperation of two or more individuals or enterprises in a specific business enterprise, rather than in a continuing relationship as in a partnership.

DEF.533 An agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time.

DEF.534 An international business collaboration between foreign interests and private parties from the host country, in which two or more parties establish a new business enterprise to which each contributes and in which ownership and control are shared.

DEF.535 In accounting, is a loan, expense, or any other form of claim on the assets of an entity that must be paid or otherwise honored by that entity.

DEF.536 In insurance, is a term used when analyzing insurance risks that describes possible areas of financial exposure/loss. Presently, there are three forms of liability coverage that insurers will underwrite: The first is general liability, which covers any kind of bodily injury to non-employees except that caused by automobiles and professional malpractice. The second is product liability, which covers injury to customers arising as a direct result of goods purchased from a business. The third is public liability, which covers injury to the public while they are on the premises of the insured.

DEF.537 Legal right to hold property of another party or to have it sold or applied in payment of a claim.

DEF.538 (1) A legal claim or hold on property as security for repayment of a debt. (2) A legal claim by a creditor on another's property as security for payment of a just debt. May also appear as the result of judgment.

DEF.539 A type of encumbrance that makes designated property security for a debt or for an obligation. For example, a mortgage or a tax judgment.

DEF.540 The annuitant is guaranteed payments for the rest of his life, but should he die before a certain time, there is a payout based on a minimum number of payments.

DEF.541 Insurance that pays a stated amount of money on the death of the insured individual.

DEF.542 An inventory cost flow whereby the last goods purchased are assumed to be the first goods sold so that the ending inventory consists of the first goods purchased.

DEF.543 "Last In First Out" assumption of inventory valuation.

DEF.544 An inventory cost flow system.

DEF.545 A reduction in the reported value of inventory below levels established in prior years under the LIFO method; arises when purchases for the period are not sufficient to offset the sale of inventory in the period.

DEF.546 The difference between the ending inventory under LIFO and FIFO (or other method that might be chosen).

DEF.547 In taxes, refers to property that is similar to another for which it has been exchanged: real estate exchanged for real estate, for instance. The definitions of like kind properties can be found in the U.S Tax Code at Section 1031.

DEF.548 A tax device for deferring gain on the transfer of a property by exchanging it for similar property. For example, you exchange investment property in New Hampshire for investment property in Colorado. If you receive no cash or unlike property, there is no tax on any gain.

DEF.549 Tax-free swaps of investment property. Commonly used for real estate.

DEF.550 When an insured is covered by more than one policy for a loss, each insurer pays according to a predetermined formula.

DEF.551 A request that a stock be bought or sold at a price that is equal to or better than some specified price.

DEF.552 A computer program step that compares data with predetermined limits as a reasonableness test (hours worked over 60 per week).

DEF.553 In contracts, refers to a certain period limited by statute after which actions, suits, or prosecutions cannot be brought in the courts.

DEF.554 An entity created under state law that is taxed like a partnership (e.g., income and losses are passed through to the partners), but where the liability of the owners is limited to their investment in the company. That is, they cannot be held personally liable for the debts of the company.

DEF.555 (1) A form of business organization that offers the beneficial tax status of a partnership while providing its members limited liability. (2) A legal structure that allows a business to be taxed like a partnership but function generally like a corporation, preventing double taxation. (3) A business entity formed upon filing articles of organization with the proper state authorities and paying all fees.

An LLC offers members (among other things) protection against liability for claims against the business that is not available in a partnership. Each owner’s financial liability is limited to the amount of money she or he has paid for the corporation’s stock.

An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to controlled by mangers this fact must be stated in the articles of organization. LLCs can be formed in every state.

DEF.556 The legal protection given to stoc1‹holders of a corporation. A stockholder's liability extends only to the total of his capital contribution.

DEF.557 (1) An owner in a limited partnership who’s liable only up to the amount of money invested. (2) A person who contributes capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership. (3) An investor in a partnership whose personal liability is limited. Such investors are generally considered passive for income tax purposes.

DEF.558 A business co-owned by one or more general partners who manage the business and limited partners who invest money in it.

A limited partnership is one in which one or more partners (but not all) have limited liability up to their investment to creditors in the event of the failure of the business. The general partner manages the business. Limited partners are not involved in daily activities.

DEF.559 An association of two or more partners formed to conduct a business jointly and in which one or more of the partners is liable only to the extent of the amount of money they have invested. Limited partners do not receive dividends but enjoy direct flow-the limited partnership a legal partnership where some owners are allowed to assume responsibility only up to the amount invested.

DEF.560 (1) Those policy makers, planners, and administrators responsible for running a business. (2) The role of conducting and supervising a business. (3) The process of coordinating people and other resources to achieve the goals of the organization.

DEF.561 A motivation technique in which managers and subordinates collaborate in setting goals.

DEF.562 Controls performed by one or more managers.

DEF.563 The process of preparing managers and other professionals to assume increased responsibility in both present and future positions.

DEF.564 A system that provides managers with the information they need to perform their jobs as effectively as possible.

DEF.565 A letter addressed to the auditor, signed by the client's chief executive office and chief financial officer. During an audit, management makes many representations to the auditor. Written representations from management in the letter confirm oral representations given to the auditor, document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding.

DEF.566 The arrangement that provides increasing authority at higher levels of management.

DEF.567 Controls performed manually, not by computer.

DEF.568 Allows investors to buy securities/assets by borrowing money from a broker/banker. The margin is the difference between the market value of a stock/asset and the loan a broker/banker makes.

DEF.569 An account wherein one can buy securities by initially paying only a portion of their purchase price and the balance at a later date.

DEF.570 A leveragability account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

DEF.571 A demand for additional funds because of adverse price movement is a stock.

DEF.572 Additional cost associated with producing one more unit of output.

DEF.573 A calculation showing the change in total cost as a result of a change in volume, e.g. if one more item of output increases the total cost by $25, the marginal cost is $25. It is usually useful to determine marginal cost because it can aid in determining if the rate of production should be altered.

DEF.574 (1) The number of people and their spending for your product line within your geographic boundaries. (2) The prospective customers for a given product or service. (3) A specific group of people who have needs to satisfy and the ability to pay (purchasing power). (4) A company’s or product’s portion of the total market for that good.

DEF.575 A place where products and services and their competitive substitutes are brought and sold, an opportunity to sell, or the demand for goods and services.

DEF.576 The extent to which a domestic industry can penetrate a related market in a foreign country. Access can be limited by tariffs or other non-trade barriers.

DEF.577 An agreement to divide a market among potential competitors.

DEF.578 A study of consumer groups and business competition used to define a projected market.

DEF.579 A group of individuals or organizations within a market that share one or more common characteristics.

DEF.580 The division of a market into segments. Each segment consists of a group of consumers with similar requirements, which can be distinguished from the requirements of other consumers in the market. There will be distinct differences between the goods and services needed to meet the requirements of each segment.

DEF.581 (1) The process of dividing a market into segments and directing a marketing mix at a particular segment or segments rather than at the total market. (2) The process of dividing a heterogeneous market into several homogeneous sub-markets.

DEF.582 (1) The percentage of the total sales (from all sources) of a service or product represented by the sales made by your enterprise. e.g. your sales divided by total sales. (2) A company’s or product’s portion of the total market for that good.

DEF.583 (1) In general, the price at which buyers and sellers trade similar items in an open marketplace. In the absence of a market price, it is the estimated highest price a buyer would be warranted in paying and a seller justified in accepting, provided both parties were fully informed and acted intelligently and voluntarily. (2) The price of one share of a stock at a particular time.

DEF.584 Securities, like government bonds, that can be sold easily. On balance sheets, they are listed as current assets because they’re expected to be converted to cash in the near future, usually one year.

DEF.585 A balance sheet in which assets are valued at their respective market prices assuming a reasonable time period for their sale.

DEF.586 (l) The techniques used to attract and persuade consumers. (2) The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives (3) Finding out what customers want, then setting out to meet their needs, provided it can be done at a profit. Marketing includes market research, deciding on products and prices, advertising, promoting, distributing, and selling.

DEF.587 A sequence of marketing organizations that directs a product from the producer to the ultimate user.

DEF.588 The business philosophy that involves the entire organization in the process of satisfying customers’ needs while achieving the organization’s goals.

DEF.589 Related business activities aimed at satisfying the demand for goods and services.

DEF.590 A system for managing marketing information that is gathered continually from internal and external sources.

DEF.591 A marketing organization that links a producer and user within a marketing channel.

DEF.592 A manager who is responsible for facilitating the exchange of products between the organization and its customers or clients.

DEF.593 A combination of product, price, distribution, and promotion developed to satisfy a particular target market.

DEF.594 The four sets of tools the entrepreneur may combine to shape market demand and facilitate transactions: Product, Price, Promotion, Distribution.

DEF.595 (1) Written document that specifies an organization’s resources, objectives, strategy, and implementation and control efforts to be used in marketing a specific product or product group (2) Details of specific tasks worked out by and for a business concerning how market research, product choice and pricing, advertising, promotion and distribution will be done.

DEF.596 (1) The process of systematically gathering, recording, and analyzing data concerning a particular marketing problem (2) The process of systematically gathering, analyzing and interpreting data pertaining to the company's market, customers and competitors, with the goal of improving marketing decisions.

DEF.597 (1) A business’ approach to marketing its products/services expressed in broad terms, which forms the basis for developing a marketing plan. (2) A plan that will enable an organization to make the best use of its resources and advantages to meet its objectives.

DEF.598 A clause in an insurance policy that allows for the settlement of a claim based on the market value rather than the actual cash value.

DEF.599 (1) The difference between invoice cost and selling price. (2) The amount added to the cost of goods in order to produce the desired profit. (3) The price increase between buying at wholesale and selling at retail often expressed as a percentage of the wholesale or cost price. (4) The amount a seller adds to the cost of a product to determine its basic selling price.

It may be expressed both as a percentage of the selling price or the cost price and is supposed to clover all the costs of doing business plus a profit.

DEF.600 Physical goods (and their cost) used in the manufacture of a product, often separated into Direct Material (that which goes directly into the product such as cream into ice cream, or steel into cars) and Indirect Material (that which is used in maintaining the manufacturing environment such as cleaning fluids or oil for lubrication of manufacturing cquipment). Indirect materials are usually part of the overhead component of cost. The term material, when used without the direct or indirect qualifier, usually refers to direct materials.

DEF.601 The actual physical handling of goods, in warehousing as well as during transportation.

DEF.602 A computerized system that integrates production planning and inventory control.

DEF.603 Where a company superimposes a group or inter-disciplinary team of project specialists on a functional organizational design. In a matrix organization the members have dual allegiances, e.g., to that particular assignment or project as well as their normal organizational department.

DEF.604 An organizational structure that combines vertical and horizontal lines of authority usually by superimposing product departmentalization on a functionally departmentalized organization.

DEF.605 As applied to securities and commercial paper, the period ends date when payment of principal is due.

DEF.606 (1) Date on which a loan, mortgage, bond, etc. is due and any outstanding principal must be paid. (2) Date at which payment is due under a term bill of exchange. (3) Date on which the corporation is to repay the borrowed money.

DEF.607 Extensions of payment beyond the original period established for repayment of a loan.

DEF.608 An acronym for Management Discussion and Analysis. MD&A usually refers to that section of a corporate annual or quarterly report that provides managerial comment on corporate performance for the time period in question.

DEF.609 A single standard or "yardstick" used to assign values to, and compare the values of, products, services, and resources.

DEF.610 A claim in favor of mechanics, contractors, laborers or material suppliers against a building or other structure. The lien can only be filed by persons who worked on the building or supplied materials.

DEF.611 The lowest compensation you are allowed to pay an employee for hourly work. It is defined by Federal, state, and sometimes local laws. State laws may be more restrictive than Federal law, and certainly may differ.

DEF.612 A racial, religious, political, national, or other group regarded as different from the larger group of which it is a part, and that is often singled out for unfavorable treatment.

DEF.613 The Small Business Administration defines minorities as those who are "socially and economically disadvantaged." The U.S. Code of Federal Regulations (CFR) contains the specific requirements.

DEF.614 The interest or percentage ownership of a group of stockholders who, in total, own less than 50% of the shares in the corporation.

DEF.615 A written record of the activities of a meeting.

DEF.616 A written record which details the events of the corporation. These records should be kept in the corporation's or LLC's record book.

DEF.617 To embezzle or appropriate dishonestly for one's own use.

DEF.618 Cash flows incidental to the operations or life cycle of the firm that cannot appropriately be placed in any of the other three categories. Examples include: gifts or inheritances received by the firm, gifts given by the firm, mysterious disappearances of cash held by the firm, etc.

DEF.619 The figure remaining after all relevant deductions have been made from the starting, or gross, amount.

DEF.620 (1) The difference between a business’s total revenue and its total expenses. This caption and amount is usually found at the bottom of a company's Profit and Loss statement. Same as Net Profit. (2) The profit earned (or the loss suffered) by a firm during an accounting period after all expenses have been deducted from revenues. (3) The difference between your business' total revenues and its total expenses. This caption and amount is usually found at the bottom of a company Income Statement (also known as "The Bottom Line").

DEF.621 Gross profit minus business expenses, minus interest expenses minus taxes. A loss results when expenses exceed revenues.

DEF.622 A lease wherein payments to the lessor do not include insurance and maintenance, which are paid separately by the lessee.

DEF.623 Typically, there are three net leases: net lease, double-net lease, and triple-net lease. A net lease is a base rent plus an additional charge for taxes. A double-net lease is a base rent plus an additional charge for taxes and insurance. A triple-net lease is base rent plus an additional charge for taxes, insurance and common area expenses.

DEF.624 Income after deducting for operating expenses but before deducting for income taxes and interest.

DEF.625 Experienced by a business when business deductions exceed business income for the fiscal year. The excess of business expenses over income. A net operating loss results when business expenses exceed business income for the operating period.

For income tax purposes, a net operating loss can be used to offset income in a prior year, or a taxpayer can elect to forego the carry back and carry the net operating loss forward.

A business may apply a net operating loss to get a refund of past taxes (or a reduction of future taxes) by carrying it back to profitable years as an additional deduction (or by carrying it forward as a deduction to future years).

DEF.626 (1) The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses. Same as Net Income. (2) The remainder after all expenses of an accounting period are deducted from all revenue of the same period.

DEF.627 Measures profitability as a percentage of revenues after consideration of all revenue and expense, including interest expenses, non-operating items, and income taxes. For a business to be viable in the long term, profits must be generated making the net profit margin ratio one of the key performance indicators for any business. It is important to analyze the ratio over time. A variation in the ratio from year-to-year may be due to abnormal conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved.

DEF.628 Incorporates all of the expenses associated with ordinary business (excluding taxes), thus is a measure of the overall operating efficiency of the firm prior to any tax considerations which may mask performance. For a business to be viable in the long term, profits must be generated making the net profit margin ratio one of the key performance indicators for any business. It is important to analyze the ratio over time. A variation in the ratio from year-to-year may be due to abnormal conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved.

DEF.629 Those items purchased less returns, discounts and allowances on those purchases.

DEF.630 A company's accounts receivable (money owed to the company) minus any provisions for bad debts.

DEF.631 (1) Actual dollar amounts received by a firm for the goods and services it has sold, after adjustment for returns, allowances, and discounts. (2) Gross sales less discounts, allowances, returns, freight out, etc. (3) Dollar sales amount remaining when reduced by sales tax and any returns or allowances.

DEF.632 Shows the percent of all transactions that may be considered as "good" net transactions. Differences may arise from returns, bad product, or other sales concessions.

DEF.633 (1) Property owned (assets) minus debts and obligations owed (liabilities). (2) Excess of assets over liabilities. (3) The owner/s’ interest in a business, calculated by subtracting all liabilities from the assets of the business.

Net worth is the difference between Total Liabilities and Total Assets. Minority interest is included here.

DEF.634 The basic layout of a computer and its attached systems, such as terminals and the paths between them.

DEF.635 A statement that is written in terms of specific measurable time-based and verifiable outcomes that challenge the organization to be more responsive to the environment to achieve the desired goals. Dependent Upon usage, GOALS are general in nature, while OBJECTIVES are specific, measurable and time-based. In some organizations, the meanings for GOAL and OBJECTIVE are reversed.

DEF.636 (1) Technically defined as "amount of orders placed, contracts awarded, services received, and similar transactions during a given period which will require payments during the same or a future period." (2) Any kind of indebtedness; an encumbrance or commitment.

Assertions about obligations deal with whether liabilities are obligations of the entity at a given date. For example, management asserts that amounts capitalized for leases in the balance sheet represent the cost of the entity's rights to leased property and that the corresponding lease’s liability represents an obligation of the entity.

DEF.637 (1) The amount used during a particular period directly in support of day-to-day operations such as wages, maintenance, office supplies, etc. (2) All the expenses normally incurred in running a business, during an accounting period, excluding the cost of goods sold.

DEF.638 (1) All selling and general & administrative expenses. Includes depreciation, but not interest expense. (2) All business costs other than the cost of goods sold (3) Expenses incurred directly with the sale of merchandise (selling expenses) and/or those expenses incurred in the general operation of a business (general or administrative expenses).

DEF.639 Reports the operating expenses as a percent of Net Revenues. This then is a measure of the total overhead employed in the firm per Net Sales Revenue Dollar; thereby giving an indication of the efficiency of the cost structure of the company. It gives an indication of the ability of a business to convert income into profit. Generally, businesses with low ratios will generate more profit than others. In general business operations with larger and more stable cash flows can sustain higher ratios than smaller and less stable operations. Scale and income stability are important considerations though it is up to the management of a business to monitor costs in an appropriate manner whatever its size.

DEF.640 Income from continuing operations that is reported on an income statement.

DEF.641 Are those derived from comparisons of items of income and expense.

DEF.642 A basic term from the disciplines of economics and accounting. In these circles the acceptable definition of the word is, "The advantage forgone as the result of the acceptance of an alternative."

Opportunity Cost is widely used in business planning in evaluating capital investment. A company measures the projected return against the anticipated return it would receive on a highest yielding alternative investment that contains a similar risk profile.

DEF.643 When items on a balance sheet are listed in order of liquidity. After cash, the other current assets are listed in order of liquidity or nearness to cash (i.e. Accounts Receivable first, then Inventory. . .).

DEF.644 (1) The sum total of the activities, processes, and people that define a business. (2) a group of two or more people working together to achieve a common set of goals.

DEF.645 (1) A graphic description of a firm which identifies key positions, personnel occupying those positions, and reporting relationships. (2) A diagram representative of the hierarchy of an organization's personnel.

DEF.646 The number of layers, or levels, of management in a firm.

DEF.647 The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed such as: the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed. If the initial directors are named in the articles of incorporation, they can hold the organizational meeting. If they are not named, then the organizational meeting is held by the incorporator.

DEF.648 The amounts spent to begin a business entity, e.g., business filing fees, franchise acquisition, and legal fees. In the United States, costs associated with a corporation issuing or selling shares or other securities are capitalized and not tax deductible. Other organization expenses may be capitalized and amortized over a period of sixty (60) months or more; thereby providing possible tax relief through organization cost deductions.

DEF.649 A policy or function applicable to the entire organization and not just one single department.

DEF.650 The grouping of resources and activities to accomplish some end result in an efficient and effective manner.

DEF.651 The process of acquainting new employees with an organization.

DEF.652 The purchase discount offered on some bonds (and similar obligations) in lieu of interest. For example: Zero-Coupon Bonds. OID is generally treated as interest income to the holder rather than as a capital gain.

DEF.653 A federal law in the United States that requires employers to provide employees with a workplace that is relatively free of hazardous conditions.

DEF.654 The transfer of data processing functions to an independent third party.

DEF.655 The still unpaid part of a loan.

DEF.656 (1) The costs associated with providing and maintaining a manufacturing or working environment. For example: renting the building, heating and lighting the work area, supervision costs and maintenance of the facilities. Includes indirect labor and indirect material. (2) Business expenses not directly related to a particular good or service produced. An example would be utilities.

DEF.657 Expenses incurred in producing a commodity or rendering a service, but which cannot conveniently be attributed to individual units of production or service. Examples are heating, lighting etc.

DEF.658 (1) A virtual marketplace for trading securities. Dealers conduct transactions via computer or telephone, rather than through an auction at a central location, like the New York Stock Exchange. (2) A network of dealers who buy and sell the stocks of corporations that are not listed on securities exchange.

DEF.659 Time worked in excess of forty hours in one week; under some union contracts, it can be time worked in excess of eight hours in a single day.

DEF.660 (1) An association of two or more persons for the conduct of an enterprise other than in corporate form. The rights, duties, responsibilities of the people so associated may be covered by a partnership agreement or, if not, they are determined by law. (2) Business owned by two or more people who share profits and losses. Owners are personally liable for the partnership’s debt.

In contrast to a corporation, a general partnership can come into existence without the need to file any formal papers with any state official. Thus, if Jones and Smith, without signing any agreement between them and without filing any documents with the state begin to jointly operate a corner candy store, they will have a general partnership.

Additional Definitions:

DEF.661 Products that will normally become a part of the purchaser's end product. Examples are screws, bolts, transistors, printed circuits, electric motors, forgings, castings, etc.

DEF.662 Permanent employment in which individuals work less than a standard workweek.

DEF.663 The stated minimum value of a share stock. Stock must be sold for at least this value or the owner of the stock can face liability. With low par value stock or no par value stock this liability is minimized.

DEF.664 The Procurement Automated Source System managed by the Small Business Administration. Registering with this central referral system of small businesses interested in selling to the government can bring you business with almost no effort. Registration is free.

DEF.665 Defined in the US Tax Code as one or more trades, business or rental activity that the taxpayer does not materially participate in managing or running. All income and losses from passive activities are grouped together on an income tax return and, generally, loss deductions are limited or suspended until the passive activity that generated them is disposed of in its entirety.

DEF.666 Loss on an investment that is deductible only up to the limit of gains from similar investments. The limit mainly affects tax shelters and does not apply to stocks, bonds or investments in businesses in which the investor materially participates. Special rules apply to investments in real estate.

DEF.667 The first sale of a newly issued security. Those securities are purchased in the primary market. All subsequent trading of those securities is done in the secondary market.

DEF.668 A market in which an investor purchases financial securities (via an investment bank) directly from the issuer of those securities.

DEF.669 Advertising whose purpose is to increase the demand for all brands of a product within a specific industry.

DEF.670 (1) Main Party to a transaction. (2) A performer in a commercial who can be recognized or identified, including but not limited to those performing speaking parts.

DEF.671 (1) Amount owed on a loan not including interest. Principal in the case of a loan refers to the actual amount borrowed and on which interest is paid. (2) The amount of money you borrow, or the amount of credit you receive exclusive of interest.

DEF.672 The auditor responsible for the greater portion of financial statements. The principal auditor may assume responsibility for the work of the other auditoi or divide responsibility with the other auditor.

DEF.673 In the event of a loss, an insured firm or individual cannot collect from the insurer an amount greater than the actual dollar amount of the loss.

DEF.674 A projection or an estimate of future results caused by specific actions in the present. A pro forma financial statement predicts how business will go if certain assumptions come about.

DEF.675 Financial forms (invoices, P&L statements, balance sheets, etc.) based on future expectations.

DEF.676 Financial planning statement that projects future performance. The objective of pro forma financial information is to show effects on historical financial information if a proposed event had occurred earlier.

DEF.677 A statement of revenue and expenses that includes some hypothetical values. It shows what could be expected to happen if a corporation decided to go through with a takeover, for example.

DEF.678 An invoice provided by a supplier prior to the shipment of merchandise, informing the buyer of the kinds and quantities of goods to be sent, their value, and important specifications.

DEF.679 Statement of revenue and expenses showing the profit or loss for a certain period of time.

DEF.680 Also known as an income statement. It shows your business revenue and expenses for a specific period of time. The difference between the total revenue and the total expense is your business net income. A key element of this statement, and one that distinguishes it from a balance sheet, is that the amounts shown on the statement represent transactions over a period of time while the items represented on the balance sheet show information as of a specific date (or point in time).

DEF.681 Company's ability to generate revenues in excess of the costs incurred in producing those revenues.

DEF.682 Measures of performance showing how much the firm is earning compared to its sales, assets or equity.

DEF.683 A company's ability to generate revenues in excess of the costs incurred in producing those revenues.

DEF.684 An employee benefit plan established and maintained by an employer whereby the employees receive a share of the profits of the business. The money may be paid directly to the employee, deferred until retirement, or a combination of both approaches.

DEF.685 If your company’s doing well, this is one great perk. The company gives employees bonuses tied to the amount of profit it makes.

DEF.686 A document giving all the details of a proposed transaction, but not committing either the sender or recipient until the recipient pays the sender the amount shown. Commonly used by wholesalers for the first transaction with new customers.

DEF.687 Is a price quote. It is written as an invoice, and, in effect, says: 'This is the purchase piice and terms we are offering.

DEF.688 Is to provide in advance for a prescribed form or to describe items in a program. An audit program is a listing of audit procedures to be performed in completing the audit. A computer program (software) is a listing of steps to be performed in processing the data.

DEF.689 A computer-driven program to buy or sell a group of stocks.

DEF.690 Controls built into computer software that include reasonableness tests, control totals, and sequence checks.

DEF.691 A corporation formed by federal, state or local governments for specific public purposes.

DEF.692 The body of law that deals with the relationships between individuals or businesses and society.

DEF.693 Insurance that protects the policyholder from financial losses due to injuries suffered by others as a result of negligence on the part of a business owner or employee.

DEF.694 Either: a Government ownership and operation of a productive facility for the purposes of providing some goods or services to citizens; or, in investments, portion of a corporations stock that is publicly traded and owned in the open market.

DEF.695 The business of generating goodwill toward an individual, cause, company, or product.

DEF.696 Communication activities used to create and maintain favorable relations between an organization and various public groups, both internal and external.

DEF.697 (1) The relationship of one thing to another. (2) The relative size, expressed as the number of times one quantity is contained in another (for example, the ratio of assets to liabilities of a company having total assets of $200,000 and liabilities of $150,000 would be $200,000 divided by $150,000 - 1.33).

Additional Definitions:

DEF.698 Involves conversion of financial numbers for a firm into ratios. Ratios allow comparison of one firm to another. Since ratios look at relationships inside the firm, a firm of one size can be directly compared to a second firm (or a collection of firms) which may be larger or smaller or even in a different business.

DEF.699 In audit sampling a ratio of the proportion of errors in the sample applied to the population value to estimate total error.

DEF.700 A basic material that actually becomes part of a physical product; usually comes from mines, forests, oceans, or recycled solid wastes.

DEF.701 Raw as in unfinished. The stuff finished products are made of.

DEF.702 Accounts receivable or inventory which changes from day to day.

DEF.703 A guaranteed line of credit revolving credit agreement a guaranteed line of credit.

DEF.704 You have one of these for your charge cards. The lender lets you borrow up to a certain amount again and again; once you pay off part of the loan you can re-borrow that part. In other words, once you pay off one shopping spree, you can start on another.

DEF.705 A credit source such as a credit card agreement, which may be used to make additional purchases before repaying the existing debt in full. It is a type of line of credit in that interest is only charged on the monthly-unpaid balance, and only a portion of the unpaid balance need be repaid each month.

DEF.706 Financing secured by collateral.

DEF.707 Money that is renewed as it is used.

DEF.708 A Letter of credit designed to cover a series of similar consignments over a period of time.

DEF.709 In commercial banking is a contractual agreement between a bank and usually a company where the bank agrees to provide loans up to a specified maximum over a specified period, usually a year or more. In consumer banking, it is a loan account requiring monthly payments less than the full amount of the loan, and the balance is carried forward with a finance charge on that balance.

DEF.710 A loan that is automatically renewed upon maturity.

DEF.711 (Request For A Proposal)

DEF.712 In relation to business premises, a right given in the lease agreement for a tenant to assign the lease to another tenant when the business is sold.

DEF.713 Assertions about rights deal with whether the entity has rights to the asset at a given date. For example, management asserts that amounts capitalized for leases in the balance sheet represent the cost of the entity's rights to leased property.

DEF.714 When we subtract from the rate of return on an asset a rate of return from another asset that has similar risk. This gives an abnormal rate of return that shows how the asset performed over and above a benchmark asset with the same risk. We can also use the beta against the benchmark to calculate an alpha which is also risk adjusted performance.

DEF.715 An analysis of the possibility of suffering loss.

DEF.716 Sometimes referred to as risk assessment; impact assessment; corporate loss analysis; risk identification; exposure analysis or exposure assessment is the process of identifying and minimizing the exposures to certain threats which an organization may experience.

DEF.717 The measurable possibility of losing or not gaining value. Risk is different from uncertainty. Uncertainty is not measurable.

DEF.718 The process of evaluating the risks faced by a firm or an individual and then minimizing the costs involved with those risks.

DEF.719 An individual that owns a business as opposed to stock in a corporation. A sole proprietor pays no corporate income tax but has unlimited liability for his/her business debts and obligations.

DEF.720 (1) Ownership of a business or enterprise entirely by one person. (2) A business carried on by the owner as an individual. The owner of a sole proprietorship is personally and fully liable for all business debts; thus, personal property could be taken to pay business debts.

Additional Definitions:

DEF.721 A person who trades by himself/herself without the use of a company structure or partners and bears alone full responsibility for the actions of the business.

DEF.722 (1) A multi-column sheet of paper used for performing numeric work, especially accounting and business related weekly or monthly summaries. (2) A computer application program that supports a user in numeric manipulation, especially in column / row format.

DEF.723 A software package that allows the user to organize numerical data into a grid of rows and columns.

DEF.724 Pronouncements concerning unaudited financial information of a nonpublic entity. They are issued by the AICPA Accounting and Review Services Committee.

DEF.725 Display that is suspended or that rises from a pedestal at different levels and planes, none of which move.

DEF.726 A position created to provide support, advice, and expertise within an organization.

DEF.727 A statement detailing the cash into the business minus cash disbursements. This statement is concerned only with cash transactions. Non- cash items, such as depreciation, are not included in this document.

DEF.728 A financial statement listing cash amounts moving through each account and principal categories of revenues and expenses during an accounting period and/or during shorter periods (weeks, months, quarters, etc.) within the accounting period.

DEF.729 A statement that illustrates how the operating, investing, and financing activities of a company affect cash during an accounting period.

DEF.730 A summary of the dollar amounts of a firm’s assets, liabilities, and owners’ equity accounts at the end of an accounting period.

DEF.731 A measure that summarizes a particular characteristic of an entire group of numbers.

DEF.732 Making inferences in uncertain situations using applied mathematics. Measurements from a small group, the sample, are used to infer the behavior of a larger group, the population. Probability theory determines how well the sample represents the population.

DEF.733 An information-gathering system that plots data on control charts and graphs to identify and pinpoint problems in product quality.

DEF.734 A set of specific statistical techniques used to sample both work in progress and finished products to find problems in the production process and improve product quality.

DEF.735 A law that is passed by the U.S. Congress, a State Legislature, or a Local Government.

DEF.736 Shows the degree to which a company can grow using retained earnings to fund growth.

DEF.737 (1) A group of individuals or organizations, or both, for which a firm develops and maintains a marketing mix suitable for the specific needs and preferences of that group. (2) A specific group of customers at which a company aims its products and services. (3) The targeted audience.

DEF.738 A federal tax on imports or exports. Japan's import tariffs drive U.S. trade negotiators nuts. The tariffs protect Japan’s domestic industries by raising foreign producers’ expenses—and usually the price of their goods.

DEF.739 A tax that is levied on a particular foreign product entering a country.

DEF.740 The total of all assets; both current and fixed.

DEF.741 The sum of the fixed costs and the variable costs attributed to a product.

DEF.742 (1) Those costs associated with production that change directly with the amount of production, e.g., the direct material or labor required to complete the build or manufacturing of a product. (2) Any costs which change significantly with the level of output. The obvious example is cost of materials.

Additional Definitions:

DEF.743 Are those business costs that usually fluctuate dependent upon manufacturing or sales volume.

DEF.744 A loan that allows the lender to adjust the interest up or down with the market within the terms of the note. Your banker determines rates.

DEF.745 A loan with an interest rate that changes, tracking market conditions.

DEF.746 The characteristic tested has many possible values (such as dollar value of inventory).

DEF.747 A statistical measure of dispersion in a population. The variance is the square of the standard deviation. The standard deviation equals the square root of the arithmetic mean of the squares of deviations from the arithmetic mean.