Banking Company Final Accounts

Banking Company Final
Accounts
Introduction
◼ Bank is an Institution which deals in money as a commodity.
◼ Banks keeps the wheels of economy moving.
◼ Banks have witnessed revolutionary change post

liberalisation.
◼ Technology have brought drastic transformation in Banks.

Topics Covered
◼ Financial Statements including schedules.
◼ Non Performing Assets.
◼ Classification of Advances.
◼ Income Recognition Policy

◼ Calculation of rebates
Core Functions of Bank
◼ Accepting Deposits
◼ Lending the same in the form of loans and advances

Major Income & Expenditure
for the bank
◼ Interest on loans & Advances-Major Income.
◼ Interest on Deposits-Major Expenditure.

Accounting System
◼ The accounting system of a banking company is

different from that of a trading or manufacturing
company. A bank has a large number of customers
whose account are to be maintained in such a way so
that these should be kept up to date.
Accounting System
◼ Banks prepare their accounts according to Banking

regulation Act, 1949.
◼ The final accounts of bank are in vertical format .The

final accounts consist of :-
a) Profit and Loss Account
b) Balance sheet
◼ There are 16 schedules in the final accounts of banks.

Balance Sheet…..
◼ Balance Sheet should be prepared as per the revised format

following the vertical method for its preparation including the
last year’s figure.
Balance Sheet…..
Schedule 1 — Capital
Capital is shown as first item.
Schedule 2— Reserves and Surplus

(1) Statutory Reserve
(2) Capital Reserves
(3) Securities Premium
(4) Revenue and other Reserves
Balance Sheet…..
Schedule 3 — Deposits
(1) Demand Deposits
(2) Savings Bank Deposits
Schedule 4— Borrowings
◼ Borrowings in India (RBI, other banks, other institutions and
agencies);
◼ Borrowings outside India.
Balance Sheet…..
◼ Schedule 5 — Other Liabilities & Provisions:
(1) Bills Payable

(2) Inter office Adjustment (Net)
(3) Accrued Interest
(4) Others (including provisions).
Inter office Adjustment (Net)
◼ The various branches of the bank have number of transactions

with each other. At the year end there remain some
outstanding entries which are shown under inter-office
adjustment(net) A/c.
◼ Inter-office Adjustment (Cr Bal)-Sc 5
◼ Inter-office Adjustment (Dr Bal)-Sc 11
Balance Sheet…..
Schedule 6 — Cash and Balance with RBI
(1) Cash in hand
(2) Balances with RBI (in Current Account, in other accounts).
Schedule 7 — Balance with Banks and Money at Call &

Short Notice.
◼ Balance with Bank
◼ Money at Call and short notice
Money at Call and short notice
◼ The call/notice money market forms an important segment of

the Indian Money Market.
◼ It means the amount lent by the bank in money market to

other banks.
◼ In case of liquidity it is next to Cash & Bank Balance.
◼ Second line of defence for the bank.

Balance Sheet…..
Schedule 8 — Investments
(1) Investment in India in Govt. Securities and others
(2) Investments outside India in Govt. Securities and others
Balance Sheet…..
Schedule 9 — Advances:
(1) Bills purchased and discounted, Cash Credits, Overdrafts,

and Term Loans
(2) Secured by tangible assets
(3) Advances in India.
(4) Advances outside India
Balance Sheet…..
Schedule 10— Fixed Assets
(1) Premises
(2) Other fixed assets
Schedule 11 — Other Assets
(1) Inter-office Adjustment (Net)

(2) Accrued Interest
(3) Tax paid in Advance
(4) Stationery and stamps
(5) Non-banking Assets
Balance Sheet…..
Schedule 12 — Contingent Liabilities:

1.Claims against the bank not acknowledged as debt
2. Liability for partially paid investment
3. Liability against forward outstanding contract
4. Guarantee given on behalf of constituents
5. Acceptances, endorsements and other obligations
6. Other items.
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Profit and Loss Account….
◼ Banking companies are required to prepare their Profit and

Loss Account according to Form B in the Third Schedule.
Form B is in a summary form and the details of various items
are given in the Schedules.
Schedule 13 — Interest earned

◼ Interest/Discounts on advances/ bills
◼ Income on investment
◼ Interest on balance with RBI & other inter bank funds
Schedule 14 — Other Incomes
◼ Commission, Exchange and Brokerage
◼ Profit on Sale of Investment
◼ Profit on Revaluation of Investments
◼ Profit on Sale of Land etc.
◼ Profit on exchange transactions.
◼ Income from dividend.
Schedule 15 — Interest Expended:
(1) Interest on Deposits

(2) Interest on RBI/Inter bank borrowings
(3) Others.
Schedule 16 — Operating Expenses
All revenue expenditures Rent, Taxes and Lighting, Salaries,

Wages, Depreciation, Law charges etc.
Schedule 16 — Operating Expenses
I. Payments to and provisions for employees

II. Rent, Taxes and Lighting
III. Printing and Stationery
IV. Advertisement and Publicity
V. Depreciation on Bank’s property
VI. Director’s fees, allowances and expenses
VII. Auditor’s fees and expenses (including branch auditors)
VIII. Law Charges
IX. Postages, Telegrams, Telephones, etc.
X. Repairs and Maintenance
XI. Insurance
XII. Other expenditure
KEY TERMS……
REBATE ON BILLS DISCOUNTED

▪ Rebate on Bills Discounted is also known as Discount
Received in Advance or Unexpired Discount or Discount
Received but not earned.
Deducted from sc 13.

NON PERFORMING ASSETS
NON PERFORMING ASSETS
◼ An asset, including a leased asset, becomes non-performing

when it ceases to generate income for the bank.
◼ Banks usually categorize loans as non performing after 90

days of nonpayment of interest or principal
CLASSIFICATION OF
ADVANCES
Assets Meaning Provision(%)
1.Standard Asset Carry normal risk 0.40%
2.Substandard Asset Remains in NPA category 15%
for less than 12 months
3.Doubtful Asset Remains in NPA category
for more than 12 months
a. Unsecured Doubtful 100%

Asset
b.Secured Doubtful Asset
-up to 1 year 25%
-between 2-3 years 40%
-more than 3 years 100%
4.Loss Asset Advances cannot be 100%
recovered
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Banking Company Final

◼ Bank is an Institution which deals in money as a commodity.

◼ Banks keeps the wheels of economy moving.

◼ Banks have witnessed revolutionary change post

◼ Technology have brought drastic transformation in Banks.

◼ Financial Statements including schedules.

◼ Non Performing Assets.

◼ Income Recognition Policy

◼ Lending the same in the form of loans and advances

◼ Interest on Deposits-Major Expenditure.

◼ The accounting system of a banking company is

◼ Banks prepare their accounts according to Banking

◼ The final accounts of bank are in vertical format .The

◼ There are 16 schedules in the final accounts of banks.

◼ Balance Sheet should be prepared as per the revised format

Schedule 2— Reserves and Surplus

◼ Schedule 5 — Other Liabilities & Provisions:

(1) Bills Payable

◼ The various branches of the bank have number of transactions

Schedule 7 — Balance with Banks and Money at Call &

◼ The call/notice money market forms an important segment of

◼ It means the amount lent by the bank in money market to

◼ In case of liquidity it is next to Cash & Bank Balance.

◼ Second line of defence for the bank.

(1) Bills purchased and discounted, Cash Credits, Overdrafts,

Schedule 11 — Other Assets

(1) Inter-office Adjustment (Net)

Schedule 12 — Contingent Liabilities:

◼ Banking companies are required to prepare their Profit and

Schedule 13 — Interest earned

Schedule 15 — Interest Expended:

(1) Interest on Deposits

Schedule 16 — Operating Expenses

All revenue expenditures Rent, Taxes and Lighting, Salaries,

I. Payments to and provisions for employees

REBATE ON BILLS DISCOUNTED

Deducted from sc 13.

NON PERFORMING ASSETS

◼ An asset, including a leased asset, becomes non-performing

◼ Banks usually categorize loans as non performing after 90

a. Unsecured Doubtful 100%

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