Financial Terms Glossary - I

imprest fund
In bookkeeping, a fixed sum of money that is replenished from the general checking account. An example is a petty cash box of say $300. The cash is used for small payouts and is replenished as needed. Another example is a payroll checking account. It contains only enough money to cover all the paychecks, and in some cases, the payroll taxes.

impound account
See escrow.

imputed interest
The IRS has the authority to impute or assign interest in a contract when none is stated, or the stated interest is too low. This results in reducing the amount of favorable long-term gain and increasing the interest income that is taxed at the higher (ordinary) tax rate.

incentive stock options
Stock options granted to employees allowing them to buy stock in their employer's company for a specified price and a specified period of time. Such options are generally subject to income tax when the stock is disposed of.

income shifting
A term to describe moving income from one year to another. Also the shifting of income from one family member to another to take advantage of the other person's lower tax bracket.

income statement
Also called the operating statement or the profit and loss statement (the "P & L"). It is the summary of the sales and expenses of a company for a specific period of time, such as a month, quarter, or year. It is the moving picture that tells one how a company got from one balance sheet date to another. Think of the balance sheet as a still photo showing where you are at a given date. If a company's net worth increased by $100,000 from one balance sheet date to another, the income statement will show the volume of sales and expenses necessary to create that change in net worth.
See also balance sheet.

incorporate
See corporation.

incremental cost
The cost of one more item after the cost of an initial quantity has been established. For example, assume that 10,000 catalogs will cost you $20,000 dollars to produce and print ($2.00 each). If you increase the quantity to 12,000 and the price increases to $22,000, the additional 2,000 are costing you only $1.00 each (the incremental cost).

independent accountant
An accountant that has no financial interest and holds no office or position in the company about which he or she is making a financial report.

independent contractor
See employee vs independent contractor.

indirect cost
Items of overhead that do not vary directly with the volume of activity in a business. Examples of indirect costs would be insurance, utilities, and building maintenance.

individual retirement account (IRA)
IRAs provide special tax benefits for those who set up and contribute to such accounts. The type of IRA that is best for you (traditional or Roth) will depend on several factors, such as your earnings level, how long you have until retirement, and your estimated tax brackets before and after retirement.
See also Roth IRA.

innocent spouse relief
A provision in the income tax law which protects one spouse from the tax liability of the other when there has been a gross understatement of the tax and the innocent spouse had no reason to know of the understatement by his or her spouse.

insider trading
Insider trading refers to the buying and selling of stock by certain shareholders of a corporation. If a trade is based on material information about the company that is known only to shareholders and/or employees of the company and not the general public, the trades are forbidden by the Securities and Exchange Commission (SEC). Illegal insider trading also occurs when corporate insiders provide "tips" to family members, friends, or others, and those parties buy or sell the company's stock based on that information.

installment sale
A sale with a series of payments over a period of months or years. In other words, the seller carries the paper or finances the sale. The income tax on an installment sale generally can be paid as the money is received.

insurable interest
A person's interest in another person's property is such that the destruction of the property would cause a financial loss to him or her. You are not allowed to insure people or property unless you have an insurable interest.

insurance twister
An insurance twister is a dishonest salesperson who will use improper number comparisons and a deceptive sales presentation to entice you into canceling an insurance policy in favor of buying one that he or she is offering. You should get a second opinion if a salesperson is suggesting that you cancel a current insurance policy. Twisters like to put as little as possible in writing and they usually try to create a sense of urgency for changing the new policy.

intangible asset
An asset with no physical existence, the value of which is determined by rights given to the owner. (For example, patents or trademarks.)
See also copyright.

internal audit
An audit by a company's own personnel to determine the effectiveness of accounting procedures. An internal auditor verifies the reliability of accounting records, determines the safeguarding of company assets, and determines that management's policies are being carried out.

internal control
A clear definition and separation of duties for various employees or groups within a company. The intent of separating the duties is to protect against fraud. Proper internal controls help to assure the accuracy of reports to management.

Internal Revenue Service (IRS)
Your financial partner - more interested in your gains than in your losses. Seriously, the taxing authority of the United States.

inter vivos trust
A trust that becomes effective during the lifetime of the one who establishes it (the settlor) as opposed to a testamentary trust that takes effect at the death of the settlor.

intestacy laws
The state law that determines what will happen to your assets if you die without a will.

intestate
One who dies without a valid will is said to have died intestate.

inventory turnover
The number of times the inventory in a business is sold during a given accounting period, usually a year. This is a valuable management performance comparison tool. Although not the most accurate measure of inventory turnover, it is often computed by dividing sales by the average inventory on hand (at the selling price). The more accurate measurement is to divide the cost of goods sold for the period by the average inventory at cost. Whatever the method, if it is consistent from year to year, it serves to let management know the relative performance of the company. Example: If average inventory (at cost) is $100,000 and the cost of goods sold is $900,000, the inventory turned over nine times during that accounting period. A business should compare current inventory turnover to prior years' inventory turns and find out what causes any variation.

investment banker
A financial institution that buys the entire new issue of stocks or bonds from the issuing corporation and then sells such securities to the general public. The investment banker is sort of a wholesaler who acts as a middleman between the corporation who seeks to raise capital and the public who wishes to invest.

involuntary conversion
The destruction or loss of property through theft, casualty, or condemnation. For federal income tax purposes, any gain on such a conversion is not taxable if qualified replacement property is purchased within certain time limits.

IPO (initial public offering)
The first sale of stock in a corporation to the general public. This is an area where the unsophisticated investor can pay a dear price to learn about investing in new companies. Have a long talk with your investment advisor before jumping into an IPO.

IRA
See individual retirement account and Roth IRA.

irrevocable trust
A trust that cannot be terminated (revoked) by the one who originates it.

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