Glossary of Financial Terms

Bad debts – money or funds that a person cannot collect. Businesses are allowed to deduct bad debts under certain circumstances.

Balance sheet – a report of financial condition which includes assets, liabilities and also net worth.

Bankruptcy – a federal law that allows individuals or businesses with financial difficulties to either work out a plan to repay the funds over time or completely eliminate the bills. There are several types of bankruptcy programs.

Basis point – one one-hundredth of a percentage point. The difference between 8.04 percent and 8.05 percent is one basis point.

Before-tax income – the earnings before income taxes are paid.

Bond – this is a debt instrument that is issued for a period of at least one year that pays a fixed rate of interest for a specific period. A bond is an IOU from a corporation or government entity. Corporations and governments borrow money from investors by issuing bonds. Bonds represent debt, as opposed to stocks, which represent ownership in a company. Typically, the principal is repaid at the time of the date of maturity.

Book value – the value of a property, company or item as a capital asset based on its cost plus any additions, subtracting the depreciation.

Breach of contract – failure to abide by terms of a legal agreement without a legal excuse.

Break-even point – the point at which expenses meet income or savings. One example; in home finance, the break-even point often refers to the time it takes to recoup the costs of refinancing a loan.

Budgeting – a detailed plan for the allocation of funds in a business. Sometimes referred to as the financial picture of the business. It includes how the business plans to spend its financial resources.

Business valuation – an estimate of the worth of a business entity and its assets.