Repo 105 is an accounting trick that defines a short-term loan as a sale. A company can then use that cash to lower liabilities before paying back the loan with interest. In the repo market, companies are able to gain access to the excess funds of other firms for short periods in exchange for collateral (usually a bond). The company that borrows the funds will promise to pay back the short-term loan with a small amount of interest and the collateral typically never changes hands because the time period is very short. This is what allows firms to record the incoming cash as a sale; the collateral is assumed to have been “sold off” and bought back later.
Lehman Brothers masked extensive liabilities right before quarter-end by using this Repo 105 tactic. It was reported that Lehman accountants used the accounting maneuver to pay down $50 billion in liabilities to reduce leverage on their balance sheet before earnings were announced. This made it look like Lehman was much less reliant on debt than it actually was. The company ultimately filed for bankruptcy and was sold off to different institutions (with most U.S. operations going to Barclays).