Financial Services Terms
Accounts Payable: Money that a company owes to its suppliers. Accounts payable are a liability of a company.
Accounts Receivable: Money that a company is owed by its customers. Accounts receivable are an asset of a company.
Accrual Basis: A method of accounting that reports income when it is earned–even if not yet received–and reports expenses when incurred–even if the bills are paid later. This is contrasts with cash-basis accounting, which reports income when it is actually received and expenses when they are actually paid.
Accrued Expense: An expense incurred, but not yet paid.
Accrued Revenue: Revenue that is earned, but not yet collected.
Adjusted Gross Income (AGI): A person’s entire income reduced by adjustments including a deduction for an Individual Retirement Account or IRA, medical savings accounts, and alimony paid to an ex-spouse.
Annual Report: The formal financial statement issued yearly by a corporation. The annual report shows assets, liabilities, revenues, expenses and earnings – the financial condition of the business at business year-end, how the profits during the year, and other information that would be of interest to shareowners.
Anti-Money Laundering (AML): As money laundering is a process used to conceal the source of illegally obtained funds, Anti-Money Laundering is the legal controls that require financial institutions and other regulated businesses to prevent or report any money laundering activities.
Asset Allocation: is the strategy used in choosing between the various kinds of possible investments or the process of dividing up holdings among various sorts of assets, such as stocks (domestic and international), bonds, realty and cash.
Assets Under Management (AUM): Financial term identifying the market value of funds being managed by a financial institution (be it mutual fund, hedge fund, or securities firm) for its clients, investors and depositors. This is a popular metric system in the financial industry that measures the size and prosperity of a firm in comparison to others.
Balance Sheet: A financial statement showing the assets, liabilities and capital of a business on a given date, quantifying what the company owned, what the company is owed, and the ownership interest in the company of its stockholders over the preceding period.
Bank Reconciliation: Analysis that accounts for the difference between the balance shown on the bank statement and the balance shown in the accounting records on a given date.
Bank Secrecy Act (BSA): Also known as the Currency and Foreign Transactions Reporting Act; requires financial institutions in the United States to assist government agencies in detecting and preventing money laundering.
Blue Sky Laws: Laws enacted by states that regulate the offering and sale of securities to protect the public from fraud.
Capital Asset: All the types of property, tangible or intangible, held by a company for use or investment purposes. Most types of property are considered capital assets. However, some types of property are not. Non-capital assets include merchandise, intellectual property, notes owed your company, deprecating property (such as machinery and trucks), and real property (the land and building used for your business).
Capital Gain: Difference between an asset’s purchase price and its selling price, when the selling price is greater.
Capital Loss: Difference between an asset’s purchase price and its selling price, when the purchase price is greater.
Central Registration Depository (CRD): A Securities & Exchange Commission (SEC) data base containing licensing and complaint information about brokers and some investment advisors and their representatives.
Chief Compliance Officer (CCO): The individual primarily responsible for overseeing and managing the compliance policies and procedures within an organization. The CCO typically reports to the Chief Executive Officer or Chief Operations Officer.
Commodity Futures Trading Commission (CFTC): The agency created by Congress in 1974 to regulate the exchange trading in futures.
Depreciation: the allowance made, for accounting and tax purposes, to reflect a tangible asset’s loss in value over time.
Disposable Income: An individual’s income after taxes.
Dissolution: Termination of a corporation’s legal existence. It can be caused by failing to file annual reports, failing to pay taxes, bankruptcy, or the voluntary dissolving of the corporation by the directors and shareholders.
Double Taxation: Corporations are treated as a separate legal taxable entity for income tax purposes. Thus, corporations pay tax on their earnings. When corporate earnings are distributed to shareholders as dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Therefore, 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 (non-taxable) entities that are not subject to the double tax.
Electronic Filing (e-file): A method for United States taxpayers to use a specific type of software for the purpose of filing and submitting their tax forms online. This offers a great convenience to taxpayers as well as reduces the time for receiving any tax refunds that are due to the taxpayer.
Engagement Letter: Written document between a work provider and client with respect to a professional engagement, outlining the scope of the work to be performed and the agreed-upon terms and conditions.
FICA (Federal Insurance Contributions Act): The Federal Insurance Contributions Act (FICA) consists of both a Social Security (retirement) payroll tax and a Medicare (hospital insurance) tax. The tax is levied on employers, employees, and certain self-employed individuals.
Financial and Operational Combined Uniform Single (FOCUS) Reports: Required report filed by broker/dealers on a monthly or quarterly basis with FINRA and periodically with the SEC. The FOCUS report contains detailed information about the financial and operational status of a firm.
Financial and Operations Principal (FINOP): A person associated with a broker-dealer and registered with FINRA having the supervisory responsibility for the firm’s compliance with rules regarding record keeping, net capital, customer protection and financial reporting. FINRA permits member firms to outsource the FinOp role. The FINOP license is earned by means of successful completion of the FINRA Series 27 examination.
Financial Statements: On a periodic basis, businesses must report accounting information in the form of financial statements. GAAP requires these four statements: Balance Sheet, Income Statement, Equity Statement, Statement of Cash Flow.
Fiscal Year: A one-year period for which financial statements are prepared that may or may not coincide with the calendar year. Any twelve-month period used by a business as its accounting period is considered the fiscal or financial year. Fiscal years vary between companies and countries.
Foreign Corporation: A corporation conducting business in a state other than the one in which it is incorporated. To conduct as such, it must register for a certificate of authority to transact business in the other state or otherwise risk sanctions and penalties.
Form 1040EZ: Income tax return for single and joint Filers with no dependents. This is the simplest, six-section Federal income tax return. It is used by taxpayers with taxable income below $100,000, taking the standard deduction instead of any itemizing deductions.
Form 1099-DIV (Dividends): Statement issued by banks and other financial institutions to report dividends and distribution income to taxpayers and to the IRS.
Form 1099-INT (Interest): Statement issued year-end by payers of interest income to investors indicting the amount of taxable interest payments received on savings accounts, money market funds, interest-bearing checking accounts, and taxable bonds, but not municipal bonds.
Form 1099-OID (Original Issue Discount): Statement sent to investors and the IRS listing interest income from taxable original-issue discount securities. It reports implied and real income derived from original-issue discount securities (treasury bills, zero-coupon bonds, commercial paper).
Form NMA: The FINRA new member application submitted by broker/dealers requesting membership. The FINRA NMA process requires numerous standardized forms and support documents tailored to your proposed business including your business plan, written supervisory procedures and other manuals, biographies of your Principals, and preliminary financial statements and projections.
Form W-2: Form used to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. An employer must mail out the Form W-2 to employees on or before January 31. The form is also used to report FICA taxes to the Social Security Administration.
Form W-4 (Employee’s Withholding Allowance Certificate): Form used by employers to determine the correct amount of tax withholding to deduct from employees’ wages. The form is not mailed to the IRS, but rather retained by the employer. Tax withholdings depend on employee’s personal situation and ideally should be equal to the annual tax due on the Form 1040. When filling out a Form W-4, an employee calculates the number of Form W-4 allowances he or she will claim, based on his or her expected tax filing situation for the year.
Form X-17a-5 FOCUS Report: The basic financial and operational report form required of broker/dealers subject to any minimum net capital requirement set forth in Rule 15c3-1 .
Franchise Tax: A tax charged by US States for the privilege of carrying on business as a corporation or LLC. The value of the franchise tax could be measured either by earnings or value of capital or stock or amount of business done.
Futures Commission Merchants: An individual or organization soliciting or accepting orders and payment to buy or sell futures contracts, options on futures, retail off-exchange forex contracts or swaps. Futures Commission Merchants or FCMs must register with the Commodity Futures Trading Commission (CFTC).
GAAP: The generally accepted accounting principles or GAAP includes the standards, conventions and rules that accountants follow in performing their recording and summarizing duties and in the preparation of financial statements.
General Ledger: The complete record of a firm’s financial transactions including assets, liabilities, equity, revenue and expense. This main accounting records holds the accounting information that is needed to prepare financial statements.
Gross Income: An individual or company’s income before taxes and deductions. Individuals calculate wages, investments and asset appreciation. Companies calculate revenue less allowable expenses.
Income Statement: A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The Income Statement is also known as Profit & Loss Statement, Statement of Earnings, Statement of Income or Statement of Operations.
Income Tax: Taxes on income, both earned income (salaries, wages, tips, commissions) and unearned income (interest from savings accounts, dividends). Both individuals and businesses are subject to income taxes.
Indirect Tax: A tax collected by an intermediary from the person who bears the ultimate economic burden of the tax (such as the consumer). Types of indirect tax include: sales tax; value added tax; and goods and services tax.
Institutional Investors: Organizations which pool large sums of money and invest those sums in securities, reasl property and other investments.
Intangible Asset: Identifiable non-monetary assets that cannot be seen, touched or physically measured, and are created through time and effort, and are identifiable as a separate asset.
Interest Income: Income accrued from investments (not including the principal investment).
Investment Bank: A financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client’s agent in the issuance of securities. It may also assist companies involved in Mergers and Acquisitions, and provide supplementary services.
Investment Company: A company whose main business is holding securities of other companies purely for investment purposes. The investment company invests money on behalf of its shareholders who in turn share in the profits and losses.
Journal: A descriptive and chronological (diary-like) record of day-to-day financial transactions.
Ledger: The final source of the accounting records and data.
Liabilities: An obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
Limited Liability Company: A flexible form of business that blends elements of partnership and corporate structures.
Limited Partnership: A firm in which only one partner is required to be a general partner.
Liquid Asset: Cash or assets that can be converted into cash quickly.
Local Tax: Taxes in addition to federal and state tax applied by local municipalities, which fund community services.
Lump-sum Distribution: A disbursement of the entire funds in an account commonly paid when an employee retires or leaves a company, potentially with tax consequences if not rolled over into another retirement plan or an IRA when taken prior to retirement.
National Association of Securities Dealers (NASD): A self-regulatory organization of the securities industry, founded in 1939, responsible for the operation and regulation of the NASDAQ stock market and over-the-counter markets. In July 2007 the NASD and the member regulation, enforcement, and arbitration functions of the New York Stock Exchange consolidated to form FINRA.
National Association of Securities Dealers (NASD) Rule 3012: Requires that all firms establish, maintain and enforce a supervisory control system, including written supervisory control procedures (SCPs).
Net Asset Value: The value of an entity’s assets minus the value of its liabilities, often in relation to open-end or mutual funds.
Net Income: Income minus expenses for an accounting period.
New York Futures Exchange (NYFE): A subsidiary of the New York Stock Exchange devoted to the trading of futures products.
New York Stock Exchange (NYSE): The largest stock exchange in the world, located in New York City.
Not-For-Profit Corporation: Corporation where surplus revenues go to charitable or civil purposes and not shareholders. These corporations receive special tax treatment.
Parent Company: A company that owns enough voting stock in another firm to control management and operations; the second company being deemed as a subsidiary of the parent company.
Partnership: A business owned by two or more individuals, where each individual has liability for the debts of the business.
Pass-Through Taxation: Income of an entity is only treated as income to the investors or owners and therefore the entity is not taxed.
Payroll Taxes: A tax which employers are required to withhold from their employees paychecks covering advanced payment of income tax.
Pension: A fixed sum paid in regular intervals to an individual after retirement.
Personal Income Tax: A tax levied on a particular individual, not a business or corporation.
Plan, 401(k): A type of retirement savings accounting, in which contributions are deducted off of paychecks.
Portfolio: Financial term used to describe the investments held by a company.
Principal: The person in charge of executing orders for buying or selling accounts.
Property Tax: A levy on assets that the holder must pay.
Proxy: If a shareholder can not attend a meeting, the shareholder is allowed to vote by proxy. A proxy grants another individual the power to vote on their behalf.
Registered Agent: Agent named in the Articles of Incorporation, who receives service of process on the corporation and other important documents.
Registered Investment Advisor (RIA): Investment Adviser, who is registered with the Securities and Exchange Commission or a state’s securities agency.
Registered Office: The official address of acompany, association or any other legal entity. Generally it will form part of the public record and is registered under the Articles of Incorporation.
Registered Representative: Also called a general securities representative, a stockbroker, or an account executive, is an individual who is licensed to sell securities and has the legal power of an agent in the United States of America.
Registration: Before an initial public offering may be made of new securities by a company, the securities must be registered under the Securities Act of 1933. A registration statement is filed with the SEC by the issuer. It must disclose pertinent information relating to the company’s operations, securities, management and purpose of the public offering. Before a security may be admitted to dealings on a national securities exchange, it must be registered under the Securities Exchange Act of 1934. The application for registration must be filed with the exchange and the SEC by the company issuing the securities.
Regulatory Compliance: The goal that corporations or public agencies aspire to in their efforts to ensure that personnel are aware of and take steps to comply with relevant laws and regulations. Due to the increasing number of regulations and need for operational transparency, organizations are increasingly adopting the use of consolidated and harmonized sets of compliance controls.
Roth IRA: A special type of retirement plan under US law that is generally not taxed provided certain conditions are met.
Rule 10b-5 (Securities Fraud): Rule from the Securities Exchange Act of 1934 that specifically prohibits making any false statements or omissions in connection with the sale or purchase of securities.
S-Corporation: A small corporation which elects subchapter S tax treatment. This tax treatment allows the corporation to avoid federal level taxation. Corporate Profits and Losses are passed through to the shareholders.
Sarbanes-Oxley Act: Passed by Congress in 2002, this act regulates accounting activities by corporations in order to protect investors from fraudulent accounting activities.
Securities and Exchange Commission (SEC): Federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation’s stock and options exchanges, and other electronic securities markets in the United States.
Securities Industry Automation Corporation (SIAC): Subsidiary of the NYSE Euronet, with the purpose is to provide technical services for the exchanges themselves, members and other financial institutions. In this role, SIAC provides the computers and other systems required to run the exchanges.
Securities Investor Protection Corporation (SIPC): A federally mandated, non-profit, member-funded, corporation, which protects investors in certain securities from financial harm if a broke/-dealer fails.
Security: Financial assets, which can be used as collateral for a debt.
Sell Side: Indicates a firm that sells investment services to asset management firms.
SEP or SEP-IRA: A variation of the Individual Retirement Account adopted by business owners to provide retirement benefits for employees.
Series 27: Financial and Operations Principal Exam.
Series 63: Examination designed to qualify candidates as securities agents within a state.
Short Sale: Selling a commodity (without actually owning it during the time of the sale) with the intention of purchasing the commodity again at a lower price.
Sole Proprietorship: A business owned by a single individual.
Standard Deductions: Amount subtracted from the income of non-itemizers, including US citizens and resident aliens, based on their filing status.
State Taxes: In addition to federal income tax most states tax their constituents’ income, according to their individual standards and laws.
Tax Exempt: A person or organization not required to pay certain taxes, often for educational, scientific, or charitable reasons.
Troubled Asset Relief Program (TARP) Act: Enabled financial institutions to sell troubled assets and securities to the United States government.
U4 Form: Uniform Application for Securities Industry Registration or Transfer; representatives of broker/dealers, investment advisors, or issuers of securities use this form to become registered in the appropriate jurisdiction.
Variance: Difference between budgeted amount and actual amount incurred or sold for an item.