Economics Definition Of Terms

ASSETS 1. In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower.[clarification needed][1] The balance sheet of a firm records the monetary[2] value of the assets owned by the firm. It is money and other valuables belonging to an individual or business. [3]The two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets.[4] Current assets include inventory, while fixed assets include such items as buildings and equipment.[5] Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill, copyrights, trademarks, patents and computer programs,[5] and financial assets, including such items as accounts receivable, bonds and stocks. 2. Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings.From an accounting perspective, assets are divided into the following categories: current assets (cash and other liquid items), long-term assets (real estate, plant, equipment), prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and intangible assets (trademarks, patents, copyrights, goodwill). REAL ESTATE 1. Real estate is a legal term (in some jurisdictions, notably in the USA, United Kingdom, Canada, and Australia) that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location. 2. Land and anything fixed, immovable, or permanently attached to it such as appurtenances, buildings, fences, fixtures, improvements, roads, shrubs and trees (but not growing crops), sewers, structures, utility systems, and walls. Title to real estate normally includes title to air rights, mineral rights, and surface rights which can be bought, leased, sold, or transferred together or separately. Also called real property or realty. LIABILITY 1. General: Claim against the assets, or legal obligations of a person or organization, arising out of past or current transactions or actions. Liabilities require mandatory transfer of assets, or provision of services, at specified dates or in determinable future. 2. In the most general sense, a liability is anything that is a hindrance or puts an individual at a disadvantage. Although the term has very particular definition in the realm of finance, it is also used in non-finance contexts. The word liability may also refer to individual or an attribute or a component that puts a team or group at a disadvantage. SHORT TERM DEBT 1. Debt payable within 12 months, it includes the current portion of the long-term debt. SECURED LOAN 1. Loan agreement under which a borrower pledges a specific asset or property which the lender can seize in case of default. 2. A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may satisfy the debt against the borrower rather than just the borrower's collateral. ESTIMATED TAX

The required advance payment of a current liability that is not already being withheld for, such as investment income, capital gains, alimony, or rent.

FAIR MARKET VALUE 1. The price that an interested but not desperate buyer would be willing to pay and an interested but not desperate seller would be willing to accept on the open market assuming a reasonable period of time for an agreement to arise. 2. An estimate of the value something has in terms of what a willing buyer would have paid to a willing seller should it be subject to competition in the market. CREDIT 1. A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. 2. The borrowing capacity of an individual or company. 3. Tax credit. DEBIT An accounting entry which results in either an increase in assets or a decrease in liabilities or net worth. opposite of credit. FISCAL YEAR 1. A 12-month period over which a company budgets its spending. A fiscal year does not always begin in January and end in December; it may run over any period of 12 months. The fiscal year is referred to by the date in which it ends. For example, if a company's fiscal year ends October 31, 2006, then everything between November 1, 2005 and October 31, 2006 would be referred to as FY 2006. Not using the actual calendar year gives many companies an advantage, allowing them to close their books at a time which is most convenient for them. 2. A fiscal year (or financial year, or sometimes budget year) is a period used for calculating annual ("yearly") financial statements in businesses and other organizations. In many jurisdictions, regulatory laws regarding accounting and taxation require such reports once per twelve months, but do not require that the period reported on constitutes a calendar year (i.e., January through December). Fiscal years vary between businesses and countries. In addition, many companies find that it is convenient for purposes of comparison and for accurate stock taking to always end their fiscal year on the same day of the week, where local legislation permits. Thus some fiscal years will have 52 weeks and others 53. Major corporations that adopt this approach include Cisco Systems and Tesco. REVENUE For a company, this is the total amount of money received by the company for goods sold or services provided during a certain time period. It also includes all net sales, exchange of assets; interest and any other increase in owner's equity and is calculated before any expenses are subtracted. Net income can be calculated by subtracting expenses from revenue. In terms of reporting revenue in a company's financial statements, different companies consider revenue to be received, or "recognized", different ways. For example, revenue could be recognized when a deal is signed, when the money is received, when the services are provided, or at other times. There are rules specifying when revenue should be recognized in different situations for companies using different accounting methods, such as cash basis and accrual basis. CURRENT ASSETS A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. A company's creditors will often be interested in how much that

company has in current assets, since these assets can be easily liquidated in case the company goes bankrupt. In addition, current assets are important to most companies as a source of funds for day-to-day operations.

FIXED ASSETS 1. A long-term, tangible asset held for business use and not expected to be converted to cash in the current or upcoming fiscal year, such as manufacturing equipment, real estate, and furniture. also called plant. 2. Fixed asset, also known as property, plant, and equipment (PP&E), is a term used in accountancy for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed. These are items of value which the organisation has bought and will use for an extended period of time; fixed assets normally include items such as land and buildings, motor vehicles, furniture, office equipment, computers, fixtures and fittings, and plant and machinery. These often receive favorable tax treatment (depreciation allowance) over short-term assets. According to International Accounting Standard (IAS) 16, Fixed Assets are assets whose future economic benefit is probable to flow into the entity, whose cost can be measured reliably. STOCKS 1. An instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its proportional share in the corporation's assets and profits. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding. For example, if a company has 1000 shares of stock outstanding and a person owns 50 of them, then he/she owns 5% of the company. Most stock also provides voting rights, which give shareholders a proportional vote in certain corporate decisions. Only a certain type of company called a corporation has stock; other types of companies such as sole proprietorships and limited partnerships do not issue stock. also called equity or equity securities or corporate stock. BONDS 1. A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities. On the hand, a bond holder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors). Bonds are often divided into different categories based on tax status, credit quality, issuer type, maturity and secured/unsecured (and there are several other ways to classify bonds as well). U.S. Treasury bonds are generally considered the safest unsecured bonds, since the possibility of the Treasury defaulting on payments is almost zero. The yield from a bond is made up of three components: coupon interest, capital gains and interest on interest (if a bond pays no coupon interest, the only yield will be capital gains). A bond might be sold at above or below par (the amount paid out at maturity), but the market price will approach par value as the bond approaches maturity. A riskier bond has to provide a higher payout to compensate for that additional risk. Some bonds are tax-exempt, and these are typically issued by municipal, county or state governments, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax. MANUFACTURING COST 1. Direct material, direct labor, and manufacturing overheads expended in the fabrication, assembly, and testing of an end item.

PERIOD COST 1. Selling and general administrative expenses identified with the accounting period in which they are incurred, and charged against sales revenue in the same period. Also called period expense. 2. Depreciation, interest, rent, and other such costs associated with the passage of time (instead of with the units of output) and treated as fixed costs. VOLUME INDEX 1. A volume index is a numerical time series measure designed to help compare how the production of some class of goods and/or services, taken as a whole, differs between time periods or geographical locations. Compare price index. 2.NEGATIVE VOLUME INDEX NVI. An index that tries to determine what experienced investors are doing by looking at days where trading volume has decreased from the previous day, under the belief that unusually high volume is a sign that inexperienced investors are moving the markets. opposite of positive volume index. 3.POSITIVE VOLUME INDEX PVI. An index that tries to determine what experienced investors are doing by looking at days where trading volume has increased from the previous day, under the belief that unusually high volume is a sign that inexperienced investors are moving the markets. opposite of negative volume index. FIXED COST 1. A cost that does not vary depending on production or sales levels, such as rent, property tax, insurance, or interest expense 2. In economics, fixed costs are business expenses that are not dependent on the activities of the business [1] They tend to be time-related, such as salaries or rents being paid per month. This is in contrast to variable costs, which are volume-related (and are paid per quantity.) VARIABLE COST 1. A cost of labor, material or overhead that changes according to the change in the volume of production units. Combined with fixed costs, variable costs make up the total cost of production. While the total variable cost changes with increased production, the total fixed costs stays the same. 2. Variable costs are expenses that change in proportion to the activity of a business. In other words, variable cost is the sum of marginal costs. It can also be considered normal costs. Along with fixed costs, variable costs make up the two components of total cost. Direct Costs, however, are costs that can be associated with a particular cost object. Not all variable costs are direct costs, however; for example, variable manufacturing overhead costs are variable costs that are not a direct costs, but indirect costs.Variable costs are sometimes called unit-level costs as they vary with the number of units produced. DEPRECIATION 1. A noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. There are several accounting methods that are used in order to write off an asset's depreciation cost over the period of its useful life. Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow. 2. A decline in the value of a given currency in comparison with other currencies. For instance, if the U.S. dollar depreciates against the Euro, buyers would have to pay more dollars in order to obtain the original amount of euros before depreciation occurred. 3. Depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years. In simple words we can say that depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust, decay or other such factors.

SUNK COST 1. Cost already incurred which cannot be recovered regardless of future events. MARGINAL COST 1. The cost associated with one additional unit of production. also called incremental cost. 2. In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. It is the cost of producing one more unit of a good.[1] Mathematically, the marginal cost (MC) function is expressed as the first derivative of the total cost (TC) function with respect to quantity (Q). Note that the marginal cost may change with volume, and so at each level of production, the marginal cost is the cost of the next unit produced.

A typical Marginal Cost Curve

In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit. If producing additional vehicles requires, for example, building a new factory, the marginal cost of those extra vehicles includes the cost of the new factory. In practice, the analysis is segregated into short and long-run cases, and over the longest run, all costs are marginal. At each level of production and time period being considered, marginal costs include all costs which vary with the level of production, and other costs are considered fixed costs. A number of other factors can affect marginal cost and its applicability to real world problems. Some of these may be considered market failures. These may include information asymmetries, the presence of negative or positive externalities, transaction costs, price discrimination and others.

Opportunity cost 1. Opportunity cost or economic opportunity loss is the value of the next best alternative foregone as the result of making a decision.[1] Opportunity cost analysis is an important part of a

company's decision-making processes but is not treated as an actual cost in any financial statement.[2] The next best thing that a person can engage in is referred to as the opportunity cost of doing the best thing and ignoring the next best thing to be done. Opportunity cost is a key concept in economics because it implies the choice between desirable, yet mutually exclusive results. Opportunity cost is a Keynesian term which has come into popular use in the recent decades. It is a calculating factor used in mixed markets which favour social change in favour of purely individualistic economics. It has been described as expressing "the basic relationship between scarcity and choice."[3] The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently.[4] Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, swag, pleasure or any other benefit that provides utility should also be considered opportunity costs. 3. The cost of passing up the next best choice when making a decision. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for. Opportunity cost analysis is an important part of a company's decision-making processes, but is not treated as an actual cost in any financial statement. DIFFERENTIAL COST 1. Cost that is different for each available alternative. 2. Difference between the costs of two or more alternatives. 3. Alternative term for marginal cost. ESTIMATED TAXES Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return. PERSONAL ASSETS Personal assets are those assets that belong to you. In general, an asset is property that has value. It can be sold or used up over a period of time. The value of an asset is stated in dollars (or the appropriate currency). Personal assets include checking and savings accounts, investments, personal property, real estate, collectibles, and the value of life insurance policies. In order to place a value on personal assets, you rely on either market value or appraisal value. For assets that are liquid (i.e., there are many buyers and sellers of the asset or a close substitute), market value is a reliable indicator. For assets that are illiquid (such as a collectible), appraisal value is a more reliable indicator. INVESTMENT ASSET Investment Asset Class | Definition (1) A grouping of similar investments or assets, such as stocks, bonds, real estate and international securities. (2) A category of investment that has a distinguishable risk and return pattern. US Fixed Income and Emerging Markets stocks are examples of broad asset classes. CASH RESERVE ASSETS =cash reserves A company’s cash reserves are the funds available to meet its needs for cash, especially unanticipated needs. What level of cash reserves is sufficient depends on the company. For example, a major airline may need $1.5 billion in cash reserves to fund operations and avoid bankruptcy. Financial analysts use a number of ratios that include cash reserves to assess capital

adequacy. While a company with low cash reserves may be able to borrow, the debt service puts more pressure on future cash reserves. If cash reserves are depleted and credit is unavailable the company may default on their debts and be forced into bankruptcy. For an investment company, the term cash reserves takes on another meaning. Assets under management may include large cash reserves as part of the funds investment strategy. For example, a mutual fund might hold cash reserves in excess of what is needed for unanticipated redemptions. Similarly, a hedge fund might hold cash reserves to exploit anticipated arbitrage opportunities. For the individual, cash reserves are the savings or credit held to handle emergencies or other contingencies. BUSINESS INTEREST expense Interest incurred in the operation of your business. It is deductible as a business expense.

http://moneycentral.msn.com/taxes/glossary/glossary.asp?TermID=43 http://www.businessdictionary.com/ http://www.wikipedia.org/ http://www.investorwords.com/273/asset.html