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Glossary » C

Glossary: C
Cafeteria Employee Benefit Plan: Also known as flexible benefit plans, cafeteria plans offer a variety of benefit options from which individual employees may select, such as health insurance, life insurance, and retirement benefits. Depending on personal needs and finances, employees may voluntarily elect benefits of their choice.

Capital Gains Distribution: A capital gains distribution is a payment to shareholders of profits realized on the sale of an investment company's securities.

Capital Gains Tax: This tax is levied on profits from the sale of securities or other assets, such as land, buildings, equipment, and furniture.

Capital Loss:
A capital loss is a decrease in the value of an investment or a capital asset from its purchase price.

Cash Advance:
This instant loan may be obtained from a line of credit or a credit card account. Issuers generally charge interest from the date the advance is made until it is repaid. They may also charge a transaction fee based on the amount of the advance.

Cash Basis:
This accounting method recognizes cash inflows or outflows when they are actually expended or received. Accrual accounting, in contrast, recognizes income and expenses at the time revenue is earned (but not necessarily received) and liabilities are incurred (but not necessarily paid).

Cash Budget:
A cash budget is used to quantify an immediate, short-term cash flow. Reviewing daily, weekly, and monthly receivables and expenditures is essential for a resolution to establish credit lines or invest short-term idle cash.

Cash Flow:
This accounting statement shows the aggregate of all cash inflows and outflows. The total during any given specified time period may be expressed as positive cash flow or negative cash flow.

Cash Management: Cash management is the process of channeling available cash into expenditures that enhance productivity, directly or indirectly.

Cash Surrender Value: The cash surrender value is the amount the policyowner receives when voluntarily terminating a cash value life insurance or annuity contract before its maturity or before the insured event occurs. Computation of the cash surrender value is stated, by law, in the contract.

Casualty Loss: These usually sudden and unexpected losses are due to damage, destruction, fire, or theft. Generally, they are reimbursed either in full or in part by insurance contracts. Amounts of compensation listed for losses are not usually tax deductible if full restitution is made by the insurance carrier. However, claims denied or not covered are potentially tax deductible.

Certificate of Deposit (CD): A CD is an agreement with a commercial bank that promises a fixed interest rate on funds deposited for a specified period of time. Issued in denominations ranging from $100 to $100,000, with maturities ranging from a few weeks to several years, CDs typically earn compound interest and are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. There may be a penalty if funds are withdrawn before reaching maturity.

Check: This written, signed, and dated instrument allows for the transfer of money from a bank account to a payee.

Claim: A claim is a request for payment under the terms of an insurance policy.

Claims-Paying-Ability Rating: This figure provides an assessment of an insurance company's ability to pay claims, relative to other insurance companies.

Closing: Closing can refer to the end of a trading session or the process of transferring real estate from a seller to a buyer.

Closing Costs: Also called settlement costs, these expenses include any costs (over and above the price of the property) involved in transferring real estate from a seller to a buyer. Typically included are fees or charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Closing costs do not include points and the cost of private mortgage insurance (PMI).

Cloud on Title: A cloud on title is an apparent or potential claim, lien, or right on real estate. When present, the title is not clean, and a quitclaim deed must be filed to resolve the potential hindrance. For instance, a paid loan with property secured may not have been recorded, or a deceased owner may not have been removed from the deed to a house or title of a car.

Combined Financial Statement: An individual or corporation may own more than one affiliated business enterprise. Each has a complete set of financial documents. To provide a financial overview of all affiliates, a combined financial statement will present side-by-side accountings of balance and net worth statements.

Commercial Loan: Businesses in need of short-term financing will frequently bolster immediate cash flow with a commercial loan. The loan will be based on the credit worthiness of the business and/or owner and the prime lending rate.

Commercial Paper: This unsecured, short-term debt instrument is used by corporations to fund short-term liabilities. Since firms must have high-quality debt ratings to secure this funding, commercial paper is usually considered a safe investment. Maturity on the investment is usually less than six months.

Commission: This fee is charged by an agent for his/her services in facilitating a transaction, such as buying or selling securities or real estate, based on the dollar amount of the trade, the transaction, or the number of shares involved.

Commitment: This written agreement specifies the terms and conditions under which a lender will loan and a borrower will borrow funds to finance a home.

Common Stock:
This security represents partial ownership, also called equity, in a corporation. Common stock ownership entitles a shareholder to participate in stockholder meetings and to vote for the board of directors.

This process applies investment growth not only to the original investment, but also to income and gains reinvested in prior periods. To illustrate, if you earn compound interest on savings, you earn interest on the principle amount and the accumulated interest, as it is earned. If you earn simple interest on savings, you earn interest based only on the principle amount.

Construction Loan Note: This short-term obligation, in the form of a note, is used to fund a construction project. In most cases, the note issuers will repay the note obligation using a long-term bond, the proceeds of which can pay back the note. As an example, a city might use a construction loan note to fund a housing project to meet the demands of its growing population.

Contingent Beneficiary: On most insurance applications, owners have the option to name a primary beneficiary and a contingent, or secondary, beneficiary. At the death of the insured, a death benefit may be payable to a beneficiary. If the primary beneficiary revokes, is ineligible, or is deceased, the contingent beneficiary receives the proceeds. When no individual is named, proceeds are usually payable to the deceased's estate.

Contingent Liabilities: A contingent liability is the possibility of an obligation to pay certain sums on future events. It also refers to defined obligations for which the chances of payment are minimal.

Convertible Term Insurance:  In contrast to nonconvertible term life insurance, convertible term insurance provides the policyholder with a voluntary right (as described in the policy) to convert the face amount coverage in term insurance to a guaranteed issued identical face amount of whole life insurance.

Corporate Bond: This debt security is issued by a corporation, as opposed to the government, and it obligates the issuer to pay interest periodically and repay the principal at maturity. Corporate bonds generally feature higher interest rates because of the possible default risk, and the interest earned is often taxable.

State and federal laws permit a group of people to act jointly for business and tax purposes. Individuals who comprise the corporationare able to incur debt and realize profit without immediate legal or taxable liabilities. The corporate entity provides the advantages of attracting outside capital by selling shares of ownership, protecting owners from liability beyond their investment outlay, providing for continuity of operations beyond the lives of current shareholder owners, and allowing change of ownership through transfer of shares.

Correction: Correction is defined as reverse movement, usually downward, in the price of an individual stock, bond, commodity, or index, which brings it more in line with its underlying fundamental value. If prices have been rising on the market as a whole, then fall dramatically, this is known as correction with an upward trend.

Co-Signer: This individual adds his or her signature to a loan or a credit card agreement along with the principal applicant, thereby assuming responsibility for the outstanding balance if the applicant defaults.

Covenant not to Compete: A contract to sell a business, offer employment, or form a partnership often includes a clause that obligates a party to refrain from performing similar professional or business activities. The legal enforcement of a covenant not to competedepends on the wording, compensation, duration, and situation.

Coverdell Education Savings Account (Coverdell ESA): Formerly known as the Education IRA, this savings vehicle allows parents to accumulate tax-free savings on money earmarked for a child's college education. There are limits on income eligibility and on how much may be set aside per year.

Credit History:
A credit history is a record of how a party has paid past debts.

Credit Line:
This revolving agreement allows a person to borrow any amount up to a preapproved limit for purchases or cash advances. As the outstanding balance is paid off, credit again becomes available to fund new purchases or cash advances.

Credit Rating:
This formal assessment evaluates the ability of individuals and corporations to handle credit. The credit rating, which may be used by lending institutions when considering loan applications, is based on a party's history of borrowing and repayment, as well as the availability of assets and the extent of liabilities.
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