Skip to content
× FreshBooks App Logo
FreshBooks
Official App
Free - Google Play
Get it
You're currently on our US site. Select your regional site here:
12 Min. Read

64 Finance Terms You Should Know

64 Finance Terms You Should Know

If you’re in the finance industry, there are financial terms you’ve come to know and use regularly. However, you didn’t learn these terms overnight. And chances are, you still have many yet to master. If you’re new to the world of finance, you’re likely left scratching your head in some of your conversations with colleagues.

But that’s OK. After all, it’s all part of the learning process. That said, wouldn’t it be nice to have a quick and easy cheat sheet on important finance terms you should know? We’ve got you covered. Here, you will find a helpful database consisting of just that.

So the next time you find yourself feeling a bit confused, resort to this handy guide for a quick refresher on popular financial terminology.

Here’s What We’ll Cover:

1099

401(k)

529 Plan

Adjusted Gross Income

Amortization

Annual Percentage Rate

Annual Percentage Yield

Annuity

Appreciation

Arrears

Asset Allocation

Balance Sheet

Bear Market

Beneficiary

Bond Prices

Bonds

Business Day

Business Expenses

Business Owner

Capital Gain

Capital Loss

Cash Equivalents

Cash Flows

CD

Civic Liability

Collateral

Credit History

Credit Limit

Credit Risk

Credit Score

Current Assets

Customer Service

Cryptocurrency

Debt-to-Income Ratio

Defined-Benefit Plan

Defined Contribution Plan

Earnings Per Share

Estate Planning

Expense Ratio

Financial Institution

Financial Market

Financial Statement

Income Statement

Intangible Asset

Intellectual Property

Investment Objectives

Itemized Deductions

Maximum Extent

Monthly Payment

Outstanding Balance

Outstanding Shares

Payment History

Percent Stocks

Positive Cash Flow

Privacy Notice

Private Company

Property Taxes

Real Estate

Service Fee

Service Marks

Sole Discretion

Standard Deduction

Stock Price Performance

Time Period

Key Takeaways

1099

A 1099 is simply the tax form that enterprises issue to independent contractors at tax time. What’s more, 1099s are also used to report income from rental properties or investments.

401(k)

An employer-provided fixed contribution plan. This plan allows you to deposit money directly from your salary into a tax-friendly retirement account. While this money is usually pre-tax, it can sometimes be after-tax, as well.

529 Plan

A tax-friendly savings account that allows you to save for college expenses. Specific to your state.

Adjusted Gross Income

Your total income minus certain adjustments. These can include deductions for student loan interest, alimony or contributions to certain types of retirement accounts. Adjusted Gross Income is a component in calculating your total taxable income.

Amortization

The process of reducing a balance over time on a due loan. Generally, when you start to repay the loan, you use a higher percentage of each payment to pay interest. Over a period of time, the principal percentage will increase.

Annual Percentage Rate

The Annual Percentage Rate (APR) is the total cost of borrowing money each year. APR applies to money borrowed via a loan, credit card, or other methods. What’s more, it adds the amount of interest you owe to any other related expenses.

Annual Percentage Yield

This term represents the total amount of interest you earn from an investment or savings account over the course of a year. Annual Percentage Yield (APY) also applies to the effect of compound interest.

Annuity

A financial instrument that is usually provided by an insurance company to guarantee a certain payment. Annuity applies to a one-time payment or incremental payments.

Appreciation

The increased value of a particular asset over time.

Arrears

A payment method in which the payer pays the payee after completing work for payment. This clause also applies to late payments.

Asset Allocation

A combination of different financial instruments (bonds, cash, stocks, ETFs or mutual funds, for example). Investors use this to diversify their funds. It is very important to maintain an asset allocation equal to your risk tolerance.

Balance Sheet

Specifies the company’s assets, liabilities, and shareholders’ equity. The balance sheet provides potential investors with a summary of the company’s financial status.

Bear Market

Describes the state of the stock market, indicating that the overall value of the stock is declining.

Beneficiary

The recipient of an article or asset, usually after the death of its original owner.

Bond Prices

The bond price is the price that investors are willing to pay for existing bonds. In the online issuance forms and statements you receive, you get the bond price as a percentage of the face value.

Bonds

An investment that’s essentially a loan provided by an investor to a bond issuer (such as the government or a company). The bond issuer shall repay the invested funds at specified time intervals, with interest attached. The risk of bonds is lower than that of stocks.

Business Day

Any day other than Saturday, Sunday, a federal holiday or other days in which banks are required or authorized to close.

Business Expenses

Costs incurred over the normal course of business operation. Business expenses can apply to small entities or large companies. Business expenses are part of the income statement, where the expenses are subtracted from income to arrive at the company’s net taxable income.

Business Owner

A person who controls currency and operational decisions in a business, either alone or with partners. A business owner has the ultimate control over a company and decides what and whom to delegate to.

Capital Gain

Profit from the sale of assets that have increased in value. The tax rate on capital gains is more favorable than fixed income.

Capital Loss

The loss suffered by investors when they sell assets that have lost value. Investors can recover some of these lost funds by claiming them on their taxes.

Cash Equivalents

Short-term, temporary and idle financial commitments. Some examples include treasury bills, certificates of deposit and money market funds.

Cash Flows

The amount of net cash and cash equivalents transferred in and out of the company. Money received represents the inflow, and money spent represents the outflow.

CD

Certificate of Deposit. A financial instrument that serves to lock in cash so that you cannot use it for a certain period of time. Doing so nets you higher interest rates. CDs guarantee return.

Civic Liability

Requires one party to pay damages or follow other court enforcement legal obligations in litigation. Unlike the criminal liability that is usually brought by the state to correct public errors, civil liability is usually filed by the private party for damages or injunctions.

Collateral

The lender accepts the borrower’s goods, property, or assets as a guarantee for the loan. If the borrower fails to repay the loan, the collateral may become the lender’s property.

Credit History

A record showing you have your credit in the past. Credit history includes total debt burden, credit lines and timeliness of payment. The lender checks the credit history of each potential customer to decide whether to provide a new line of credit and set the terms of the loan.

Credit Limit

The maximum amount that the lender allows consumers to spend with a credit card or revolving credit line. Limits are set by credit card companies, banks and alternative lenders. Data related to the borrower sets the basis for the credit limit.

Credit Risk

The potential for loss due to the borrower’s failure to repay the loan or fulfill the contractual obligations. Traditionally, credit risk refers to the risk that the lender may not receive the principal and interest owed. This can result in interruption of cash flow and increased collection costs.

Credit Score

A three-digit score associated with your credit profile. Your debt history reflects your credit score. A high credit score indicates your trust in the lender and indicates that you are likely to repay the debt.

Current Assets

All assets of the company that you expect to sell or use for standard business operations in the next year. Current assets include cash, cash equivalents, accounts receivable, inventories, marketable securities, prepaid liabilities and other current assets.

Customer Service

Specialized services that focus on the support of the customer. Successful businesses provide quality customer service. This ensures the happiness and satisfaction of their clientele.

Cryptocurrency

A digital, decentralized currency that has nothing to do with any country or standard. Furthermore, cryptocurrency isn’t tied to other forms of legal tender.

Debt-to-Income Ratio

Debt-to-income ratio is the total monthly debt divided by the amount of your monthly income before taxes. This debt can include things like a mortgage, credit card debt or student loans.

Defined-Benefit Plan

A retirement plan sponsored by your employer where they pay you a set amount periodically after you retire. A good example of a defined-benefit plan is a pension.

Defined Contribution Plan

An investment tool, such as a 401(k), allowing employees to deposit tax-friendly funds into their accounts for use in retirement.

Earnings Per Share

The monetary value of the company’s outstanding common stock earnings per share.

Estate Planning

The process of predicting and arranging the management and disposal of a person’s estate during that person’s life.

Expense Ratio

Annual fees charged to shareholders of mutual funds. Expense ratio also applies to exchange-traded funds and other types of yearly expenses. Investors should understand the expense ratio of their investments. This allows them to avoid their expenses overtaking their returns.

Financial Institution

A company that conducts financial and currency transactions. This can include loans, deposits, currency exchange, and investments. Almost every developed economy requires the services of financial institutions to some extent.

Financial Market

Any marketplace where the trading of securities takes place. The stock market is a form of a financial market.

Financial Statement

The official record of the financial performance and condition of a company, individual, or another person.

Income Statement

A report that shows your company’s income and expenses. It also shows whether your company makes a profit or a loss over a period of time. The income statement, balance sheet and cash flow statement can help you better understand the financial status of your company.

Intangible Asset

A lack of physical assets, such as patents, copyrights, trademarks and software.

Intellectual Property

Intellectual property is a type of property, including the intangible creations of business owners and other business entities. Many types of intellectual property rights exist. Some countries recognize intellectual property more than others. The most common types are trademarks, trade secrets, copyrights and patents.

Investment Objectives

A set of goals in an investor’s portfolio. Investment objectives help the investment manager better strategize to meet the investor’s goals.

Itemized Deductions

The amount you paid for local and state income taxes or sales taxes. Can also include mortgage interest, personal property taxes, real estate taxes and disaster losses. You can also include gifts to charities, as well as part of your dental and medical expenses.

Maximum Extent

The greatest possibility, be it a monetary amount, degree, percentage, etc. The fullest extent possible.

Monthly Payment

Your payment to the lender every month to repay your loan. Your monthly payment varies depending on the term, down payment and interest rate. If you have a fixed loan interest rate, the monthly repayment amount won’t change during the entire mortgage loan term.

Outstanding Balance

The amount you owe for any debt that charges interest (such as a credit card). In most cases, it refers to the amount you owe for purchases made with a credit card and other transactions. It is also called your current balance.

Outstanding Shares

Refers to the stock currently held by the shareholders within an organization. These can include share blocks held by institutional investors or the restricted shares of the company’s officers.

Payment History

A record of all your past payments and whether you paid on time or delayed. If you haven't yet made a payment, your payment history can also include outstanding payments.

Percent Stocks

The percentage increase in the stock price relative to the last closing price of the stock recorded that day and compared to the previous day.

Positive Cash Flow

This shows that the company’s current assets are increasing. This enables it to repay debts, reinvest in the business, return funds to shareholders, pay fees and provide a buffer for future financial challenges.

Privacy Notice

Identifies the data controller and the contact details of its data protection officer. It should also detail the purpose of collecting and using personal data, the use and disclosure of the data, how long it’s kept and the legal basis for processing by the controller.

Private Company

Any firm that is privately owned. You can issue stocks and shareholders may be present. However, you can’t trade the shares via public exchanges, nor are they issued through an IPO (Initial Public Offering).

Property Taxes

Tax on the value of a property, levied by the local governing agencies in your jurisdiction.

Real Estate

Various types of properties. These can include anything from homes and office buildings to apartment complexes and hotels.

Service Fee

An additional charge rendered for a service.

Service Marks

A trademark protected and regulated by the Lanham Act. You can use the service mark to identify and distinguish the service of an individual or organization. Moreover, it also applies to a unique service from the service by others.

Sole Discretion

The right to arbitrarily exercise the power to decide matters at any time.

Standard Deduction

Standard deductions ensure that all taxpayers have at least some income that is not affected by federal income tax. Due to inflation, the standard deduction usually increases every year. You can choose to apply for standard deductions or itemize your deductions.

Stock Price Performance

The percentage increase in the value of the various stocks of companies around the world.

Time Period

A principle concept in which companies should report the financial results of their activities within a standard time period. These time periods are usually monthly, quarterly, or annually.

Key Takeaways

As you can see, there are many unique financial terms to learn and remember. When you have a basic understanding of these terms, they will become more natural the longer you use them.

Find more helpful finance articles on our resource hub.


RELATED ARTICLES