Definition

Money already spent that cannot be recovered and therefore should not factor into future decisions, though humans are psychologically terrible at ignoring it. Your brain keeps asking 'but what about the money we already spent?' and economics keeps answering 'it's gone, move on.'

Example Usage

Yes, we've invested three years in this software platform, but that's a sunk cost—continuing just because we've already spent the money is called the sunk cost fallacy.

Origin

Economic theory term from early 20th century, gained prominence in business decision-making literature

Fun Fact

The sunk cost fallacy is why people sit through terrible movies because they paid for the ticket—it's also why companies waste billions on failing projects.

Source: Managerial accounting and economics terminology

Related Terms

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Penny Stock

Stocks that trade for less than a dollar, which are to investing what scratch-off tickets are to financial planning. They're cheap, exciting, and almost certainly going to leave you with less money than you started with, but the thrill of potential riches keeps people coming back.

💰 Finance / Accounting
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accrued expenses

Costs incurred but not yet paid, recorded as liabilities on the balance sheet because accrual accounting insists on acknowledging unpleasant realities before the bills arrive. Financial statements' way of saying 'don't get too excited, you owe money.'

💰 Finance / Accounting
Advanced

push-down accounting

The practice of adjusting a subsidiary's books to reflect the parent company's purchase price allocation, essentially forcing the acquired company to record the acquisition cost on its own books. It's accounting inception.

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statement

In finance and accounting, a formal document summarizing financial transactions, positions, or activity over a specific period. Whether it's your bank statement showing where your paycheck disappeared to or a company's financial statement proving they're actually profitable, it's numbers arranged to tell a story. Reading these carefully is the difference between financial awareness and unpleasant surprises.

💰 Finance / Accounting
Beginner

generally accepted accounting principles

The rulebook for financial reporting in the US, commonly abbreviated as GAAP. It's the reason accountants can't just make up whatever numbers feel right, though creative interpretation remains an art form.

💰 Finance / Accounting
Intermediate

reserve

Resources, inventory, or funds deliberately kept back for future emergencies, strategic opportunities, or that inevitable moment when everything goes sideways. In business, it's the financial equivalent of keeping a spare tire in your trunk—boring until you desperately need it. Banks love reserves; accountants worship them; entrepreneurs pretend they have them.

💰 Finance / Accounting

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