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What is a Bank Reconciliation Statement?

It is a useful practice to compare the balance reported by the bank and your internal accounting, in the form of a Bank Reconciliation Statement. Bank Reconciliation is the useful practice of comparing the records of the bank and a business's internal accounting for a specific accounting period. Many businesses produce Bank Reconciliation Statements (BRS) on a monthly basis. There may be pending transactions that have not settled yet, such as outstanding checks to vendors, which have shown up on the business’s books but are not represented in the bank account balance. It can be important to identify which transactions have shown up on the bank’s ledger and which ones have not. Continue reading...

What is a Bank Statement?

A Bank Statement is a report issued to an account holder on a regular basis, such as monthly, which contains the account balance as of the date of the report and usually a history of transactions for the period. A Bank Statement will usually be mailed, either by the postal service or electronically, to a banking customer every month. The statement will represent a summary of the bank’s records for the recent month on a particular account, and will probably show all transactions posted to the account, along with the ending balance of the account as of the date of the mailing. Continue reading...

What are Bank Deposits?

Deposits are cash, checks, and electronic transfers that banking customers put into their personal or corporate bank accounts. Deposits will increase the balance, or pay off a debt, within a bank account. Deposits may not show up on an account balance until they have cleared from the institution or account from which the check is written or the electronic transfer was requested. The types of accounts that can receive bank deposits include but are not limited to checking, savings, and money market accounts. Bank Certificates of Deposit (CDs) can be purchased with an initial deposit that satisfied minimum amount. Deposits are considered liabilities on the balance sheet of the bank, since they are obligated to pay that money out when a customer requests it. Continue reading...

What is Account Reconcilement?

Account reconcilement is the act of comparing and affirming multiple records of the same financial information. To “reconcile the books” is to compare different records of the same accounts to ensure that they match up. One might reconcile all the different record-keeping for the same account, such as copies of checks and receipts, to be sure that they add up to the balance and ledger shown on a bank account statement. It could be that the recipient of a check has not yet cashed it, and it is important to keep all records “synced” with one another. Continue reading...

What is Investment Banking?

Investment banking activity is different than traditional banking. Investment banks often serve as intermediaries that underwrite a new issue of stock and help to distribute it. They also trade in their own accounts, run hedge funds, and generally invest and speculate in ways that most institutions can’t. Investment banks can assist with new issues of stocks and bonds, purchasing large blocks of them to distribute at a premium. Continue reading...

What is an Income Statement?

An income statement is a business’s financial statement that gives the income results from operations and non-operations activity. It is also called a profit and loss statement or a statement of operations. It is one of the major financial statements in the world of corporate accounting. The others are the balance sheet, the statement of cash flows, and the statement of shareholder’s equity. The income statement will included revenues and gains from investments and “secondary operations”, but it will not include cash flows in or out which may stem from other accounting periods. Continue reading...

What is a Cash Flow Statement?

A statement of cash flows is an accounting report which describes the changes in cash flows, which is distinct from net income. Cash Flow Statements are an important part of corporate accounting. While net income reports include non-cash items such as depreciation, as well as accounts receivable and accounts payable, cash flow statements will isolate the cash transactions in and out of the company. This helps get an idea of whether the company can pay its bills in a timely manner and so forth. Continue reading...

What is Profit and Loss (P&L) Statement?

A Profit and Loss Statement, also referred to as an “income statement,” is a corporate statement that summarizes the revenues, costs and expenses incurred by a company during a specific time period, such as a quarter or a fiscal year. The main difference between a P&L statement and a balance sheet is that the P&L is designed to show changes in line items over the period analyzed, versus a balance sheet which simply shows a comprehensive snapshot of a company’s asset and liabilities on a set date. Continue reading...

What is 'Pro Forma'?

Pro Forma is a term used frequently in the context of a company’s financial statement, and refers to the manner in which figures are presented. In Latin the term “Pro Forma” means “as a matter of form,” and in the case of a financial statement refers to how figures are presented either in present form or as projections. For publicly traded corporations, statements prepared with the pro forma method are generally made ready ahead of a planned transaction such as an acquisition, merger, or some change in corporate structure based on new investment or capital changes. Continue reading...

What is Bank Credit?

What is Bank Credit?

Bank Credit is the amount of loaned capital that an individual or business is capable of getting from a bank at a given time. This amount will be based on a series of evaluative metrics such as the total amount of assets an individual has, home equity, income, liquid net worth, work history, credit rating, and so forth. An individual can only borrow so much at a time, and, using these variables, a banker can essentially estimate how much credit could be extended that a given individual at that time. Continue reading...

What is a Bank Guarantee?

When a lending institution offers a Bank Guarantee, they are reducing the risk involved in a transaction by guaranteeing payment to the seller. Bank Guarantees often come into play with deals made internationally, where the participants in the deal prefer to have some assurances before they do business. The guarantee acts as insurance to protect the parties involved in transactions where they are not fully able to assess the strength and reliability of the other, such as when small companies bid for projects or when bids for a job come-in from around the world. Continue reading...

What is an Investment Bank?

An investment bank is a financial institution that typically specializes in large, complex transactions, such as underwriting an Initial Public Offering (IPO), mergers and acquisitions, direct investment into start-up firms, or advising large institutional clients on investments/transactions. In short, investment banks help create the bridge between large enterprises and the investor. In that sense, IPOs are one way to accomplish this, but they also help businesses secure financing in other ways, such as through bond issues or derivative products. Continue reading...

What is a Bank Draft?

The truest definition of a Bank Draft is a check written with the certification of a customer’s bank. Bank Drafts are checks also known as Bank Checks and Cashier’s Checks. They have already been cleared at the writing institution and they provide an extra endorsement that the payment is good. Regular personal checks do not need to be co-signed or verified before they are used as payment, whether or not there is enough money in an account to cover it. Continue reading...

What is Account History?

Account history is a term especially useful for investment accounts, where transactions beyond a current month or year’s records are useful for reference. Most people are familiar with the transaction history that is available for the current month, quarter, or year on an individual’s savings, checking, and credit card accounts. These are often called “activity ledgers” or something similar. Account history that reaches further back might be more useful for investment accounts, where the current value of investments, and their cost basis, will depend heavily on account history from potentially years in the past. This sort of query can be made easily with online investment account viewing software from a broker or custodian company. Continue reading...

What is the Federal Reserve Bank?

The Federal Reserve banking system was created in 1913, the same year that income taxes were added to the US Constitution. 12 regional Fed banks were established, each of which plays a role in monitoring and implementing interventions to the flow of money in the economy. The Federal Reserve Bank is a 12-bank system in the United States that plays the role of the country’s central bank. Central banks in other countries are typically part of the government and print the actual currency, but in this case the Fed is independent of the actual US government, and the Treasury Department technically prints the money. Continue reading...

What are foreign deposits?

What are foreign deposits?

Foreign deposits are taken in by international branch locations of US-based banking institutions. Banks are not obligated to pay FDIC premiums on these deposits. Foreign deposits are placed by customers into a US-based bank branch which is located in international locations. Because it is outside of Federal jurisdiction, banks are not subject to the same capital reserve requirements and do not have to pay FDIC insurance on the deposits. Continue reading...

What is an ABA Routing Transit Number?

What is an ABA Routing Transit Number?

Most people recognize this as a “routing number.” The American Bankers Association (ABA) assigns a number to each banking institution registered with them, for the purposes of electronic transfers; this is commonly known as a routing number, and officially an RTN, or Routing Transit Number. Consumers and bank clients are familiar with this number as the 9-digit number that appears beside their account number on the bottom of their personal checks. Every client with a particular bank will have have the same routing number on their checks. Continue reading...

What is a Cash Conversion Cycle?

A business with a fast ‘cash conversion cycle’ can efficiently use funds and resources to fulfill the different needs of the business and to generate more business. In the simplest terms, the ‘cash conversion cycle’ is an accounting and efficiency model which measures how fast a retailer can disburse cash to suppliers and then receive cash from customers. To be more descriptive, the business would use cash from Receivables, to get Inventory (and cover Payables), sell that Inventory, and Receive cash again. Continue reading...

What is an Earnings Recast?

An earnings recast is a revision of previous earnings reports, in which a company has made different choices with their accounting methodology that they feel are a better representation of their accounts. A common time to do this is after a company has divested itself of a subsidiary, when it will publish recast financial statements from the preceding years that show the company’s performance without the subsidiary being included. Continue reading...

What is Cash Flow from Investing Activities?

In the Cash Flow Statement, the cash flow in and out of investments, whether in shares of other companies or in capital assets, is recorded. The gains or losses from investment activities, including but not limited to shares of other companies (non-controlling interest) and the gains or losses experienced with subsidiaries, as well as negative cash flow or positive cash flow into or out of capital investment projects such as production infrastructure, are recorded in a portion of the Cash Flow Statement called Investing Activities. Continue reading...