Banking and Factoring Concepts - Video Notes

Vocabulary flashcards covering key terms related to factoring and bank reconciliation from the video notes.

Factoring

The sale of accounts receivable to a financial institution (the factor) for cash; the factor handles billing/collection and charges a fee.

Factor

The financial institution that purchases receivables and assumes collection responsibilities.

Accounts receivable

Amounts owed to a company by its customers for goods or services.

Credit card transactions (factoring)

An example where a merchant sells its receivables to a credit card company (the factor) for a small fee; payment is received quickly and the company handles collection.

Bank reconciliation

Process of comparing the bank balance with the company’s book balance to identify and resolve differences.

Timing differences

Differences due to the timing of transactions, such as outstanding checks and deposits in transit.

Outstanding checks

Checks issued by the company that have not yet cleared the bank.

Deposits in transit

Deposits recorded by the company but not yet reflected in the bank statement.

Error correction

Identifying and correcting errors made by either the company or the bank.

Adjusting entries

Journal entries recorded to reflect items that affect the book balance, such as bank fees or NSF checks.

NSF checks

Non-sufficient funds checks; checks that bounce due to insufficient funds.

Collections by bank

Amounts collected by the bank on behalf of the company and credited to the company’s account.

Service charges

Bank fees charged for maintaining the account or processing transactions.

Bank balance

The balance shown on the bank statement.

Book balance

The balance recorded in the company’s own accounting records.

Corrected balance (Cash)

Bank balance after adjustments for outstanding items and errors.

Corrected balance (Book)

Book balance after adjustments such as collections, charges, and NSF items.

Equalized corrected balances

The concept that, after reconciliation, the corrected bank and book balances should be equal.