FINAL ACCOUNTS OF BANKING COMANIES

Sec 5(b) of Banking regulation Act defines banking as “ accepting for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise withdrawable by cheque, draft, order or otherwise

In India banking companies are governed by Banking Regulation Act 1949

No banking Co shall directly or indirectly deal in the buying, selling or bartering of goods except in connection with the realisation of security given to or held by it

No banking Co can engage in any trade,or buy, sell or barter goods or others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business specified in sec 6(1)

Sec 8 of Banking Regulation Act imposes certain restrictions on the business of Banking Companies

Interest on loans and overdraft Discount on bolls discounted Dividend and interest on its own investment

Profit on overseas exchange transactions

Commission on transfer of funds, issue of bank draft and charges for various service rendered

SOURCES OF INCOME

Interest on depositsGeneral expenses of management

Maintenance of premises and equipments

Taxation

REVENUE EXENSES

Non Banking Assets: These are the assets which are not used in the ordinary course of business of banking, but they are such immovable and movable properties which come in the possession of the banking company for recovering the amount due from customers. These will be shown on the asset side of the B/S under the head ‘Other Assets’

Such assets should be disposed within 7 years and the profit or loss on sale will be shown under the sub-head ‘miscellaneous income’ in Schedule 14 ‘Other Income’

Some important provisions of Banking Regulation Act

Minimum Capital and reserves (Sec 11):

In case of banking co Incorporated Outside India, but not having a place of business in the city of Kolkatta or Mumbai, the sum of its paid up capital and reserves shall not be less than Rs. 15 Lakhs, and if it has a place of business in Mumbai or Kolkatta or in both , Rs. 20 lakhs.

In the case of Banking Companies incorporated in India the sum of paid up capital and reserves shall not be less than

- If it has a place of business in more than one states and Rs. 5 lakhs if such place of business is Mumbai or Kolkatta Rs. 10 lakhs.

- If it has all its place of business in one state other than Mumbai or Kolkatta Rs. 1 lakh in case of its principal place of business plus Rs. 10000 for each additional place of business.

Some important provisions of Banking Regulation Act(Cont..)

Commission, brokerage etc on shares: (sec13) No banking co shall pay commission, brokerage, discount etc exceeding 2.5% of its paid up value.

Dividend: (sec 15) A banking co can not pay dividend until its capitalised expenses like preliminary expenses, share selling commission etc have been completely written off. But can pay dividend without writing off depreciation, bad debt etc , where adequate provision has been made.

Some important provisions of Banking Regulation Act (Cont..)

Statutory reserve: (Sec 17) banking co incorporated in India shall transfer every year at least 25% 0f its profits before dividend to a statutory reserve until the amount of reserve together with Security Premium Account is equal to the paid up capital.

Cash Reserve: (Sec 18) Banks are required to maintain with RBI a cash reserve of at least 3% of its deposits. At present it is ---%. RBI can raise CRR up to 15%

Some important provisions of Banking Regulation Act (Cont..)

Statutory Liquidity ratio: banks are required to maintain at least 25% of its time and demand liabilities in the form of liquid assets such as gold etc. SLR may vary between 25% to 40%.

Loans and Advances restrictions: no Banking Co can advance loans on the security of its own shares.

Some important provisions of Banking Regulation Act (Cont..)

Receiving Cashier’s Counter cash Book Paying Cashier’s Counter Cash Book Sectional csh Book Cash balance Book Current Accounts ledger Saving Accounts Ledger Fixed Deposit Accounts Ledger Investment Ledger Loans ledger

BOOKS MAINTAINED BY A BANK

Bills Discounted and purchased ledger Cash credit ledger Private or profit and loss Ledger The important memorandum books and Registers

are Bill registers and Diaries Short bills recievable for collection register Acceptances, registers and diaries Safe Custody register Securities reister Standing Orders book Specimen Signature register

BOOKS MAINTAINED BY A BANK(Cont….)

Posting:entries are posted in the personal ledger directly from slips ie pay in slip, withdrawal slips and cheques. This system is known as slip system. The slips themselves act as loose journal entries.

Daily Trial Balance: TB is prepared every day from the balance of accounts in the general ledger.

Self balancing: personal ledgers are kept under self balancing system

Daily Summary Sheets: the slips posted into different personal ledgers are summarised on daily summary sheets totals of which are posted to the control accounts in the general ledger.

Special Features of bank Accounting

Continuous Check: All entries in the personal ledgers and summary sheets are checked by persons other than those who have recorded entries.

Double Voucher System: Two vouchers are prepared for non cash transactions. They are debit voucher and credit voucher.

Special Features of bank Accounting( Cont…)

According to Sec 29, a Banking Co incorporated in india, is required to prepare

at theend of each accounting year , a Balance Sheet and profit & Loss A/c in

respect of all business transacted by it in the form sets out in the Third Schedule of

the Act.

Final Accounts

Prepared in Vertical form

‘Form B’ of Third Schedule of banking regulation Act is used.

Divided into 4 Sections.

Profit &Loss A/C

1. Income: First item is interest earned. Details are shown in Schedule 13 Bad debts and other provisions are not

deducted. They are shown as a seperate item.

Second item is Other Income. The details are shown in schedule 14

Profit & loss A/C

3. Profit / loss:

Profit or loss of the current year (difference between 1&2) and profit or loss forwarded from the last year are shown

Profit & loss A/C

2. Expendeture: First item is interest expended. Details are shown in SCHEDULE 15 Second item is Operating Expenses. Details are shown in SCHEDULE 16 Third item is Provisions and Contngencies

Profit & loss A/C

4. Appropriations: Amounts transferred to statutory

Reserve, other reserves, dividend etc are shown.

The balance is transferred to balance sheet.

Profit & loss A/C

Form of Profit & Loss A/Cschedule No (current

year)(Previous year)

(1)Income Interest Earned Other Income Total

(2) Expenditure Interest Expended Operating Expenses Provisions and Contingencies Total(3) Profit/loss For current year ( 1-2) brought forward from previous year Total(4) Appropriations Transfer to reserves Transfer to proposed dividend Balance carried over to Balance Sheet Total

1314

1516

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particulars Current Year

Previous Year

1.Interest on Advances2.Discount on Bills3.Interest on balances with RBI

and other inter bank Funds4.Others Total ---------------

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Schedule 13 Interest Earned

ParticularsCurrent year

Previous year

1. Commission, Exchange and Brokerage2. Profit on sale of investment less loss on sale of investment3. Profit on revaluation of investment less loss on revaluation of investment4. Profit on sale of land, building and other

assets less loss on sale of land and other

assets5. Profit on exchange transactions less loss on exchange transactions6. Income earned by way of dividends etc from

subsidiaries/ companies or joint ventures abroad / in India

7. Miscellaneous income Total

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Schedule 14 Other Incomes

particulars Current year

Previous Year

1. Interest on Deposits

2. Interest on RBI borrowings/ inter bank borrowings

3. Others

Total

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Schedule 15 Interest expended

particulars Current year

Previous year

1. Payment to and provision for employees

2. Rent, taxes and lightings3. Printing and stationary4. Advertisement and publicity5. Depreciation on banks property6. Director’s fees , allowances and

expenses7. Auditors fees and expenses8. Law charges9. Postage, telegram, telephones

etc 10.Repairs and maintenance11.Insurance12.Other Expenses

Total

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Schedule 16 Operating Expenses

particulars Schedule No

Current Year

Previous year

Capital & liabilitiesCapitalReserves & SurplusDepositBorrowingOther liabilities TotalAssetsCash and Balance with RBIBalances with Banks & Money at Call & Short noticeInvestmentsAdvancesFixed AssetsOther Assets Total

Contingent LiabilitiesBills for Collection

12345

6

7891011

12

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Form of balance Sheet

Particulars Current year

Previous year

1. For Nationalised banks capital (fully owned by central Govt)2. For banks incorporated outside India capital (the amt brought by banks as start

up capital as prescribed by RBI) Amount of deposit kept with RBI u/s1(2)of

the Act Total3. For other banks Autherised capital (---shares of Rs --- each) issued Capital (---shares of Rs --- each) Subscribed capital (---shares of Rs --- each) Called up Capital (---shares of Rs----each) less calls unpaid Add forfeited shares Total

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Schedule 1 Capital

Particulars Current year

Previous year

1. Statutory Reserves Opening balance Additions during the year Deductions during the year2. Capital reserves Opening balance Additions during the year Deductions during the year3. Share premium Opening balance Additions during the year Deductions during the year4. Revenue and Other reserves Opening balance Additions during the year Deductions during the year5. Balance in profit & loss A/C

Total

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Schedule 2 Reserves And Surplus

Particulars Current year

Previous year

A.1. Demand Deposits (i) From banks (ii) from Others 2. Savings bank Deposits 3. term Deposits (i) From banks (ii) from Others TotalB. 1. Deposits of Branches in India 2. Deposits of Branches outside

India

Total

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Schedule 3 Deposits

Particulars Current year

Previous year

A. Borrowings in India

1. Reserve Bank of India 2. other banks 3. Other Institutions and

Agencies

B. Borrowings Outside India

total ------------------

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Schedule 4 Borrowings

Particulars Current year

Previous year

1. Bills payable

2. Inter Office Adjustments (Net)

3. Interest Accrued

4. Others (including provisions)

total ------------------

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Schedule 5 Other liabilities and Provisions

Particulars Current year

Previous year

1. Cash in hand (including foreign currency notes)

2. Balance with RBI

(i) In current account (ii) In other accounts

Total ------------------

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Schedule 6 Cash and balances with RBI

Particulars Current Year

Previous Year

1. In India (i) Balances with banks (a) In Current Accounts (b) In other Deposit Accounts (ii) Money at Call and Short Notice (a) With banks (b) With other institutions Total2. Outside India (i) In Current Accounts (ii) In other Deposit Accounts (iii) Money at Call and Short notice

Grand Total

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Schedule 7 Balances with Banks & Money at Call & Short Notice

Particulars Current Year

Previous Year

1. Investments in India (i) Govt Securities (ii) Other approved Securities (iii) Shares (iv) Debentures and Bonds (v) Subsidiaries or joint ventures (vi) Others (to be specified) Total2. Investment out side India (i) Govt Securities (including local authorities) (ii) Subsidiaries or joint ventures abroad (iii) other investments (to be specified) Total Grand total(1&2)

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Schedule 8 Investments

Particulars Current Year

Previous Year

1. (i) Bills Purchased and Discounted (ii) Cash credits, overdrafts and loans repayable

on demand (iii) Term loans Total2. (i) Secured by tangible assets (ii) Covered by bank/ Govt guarantee (iii) Unsecured Total3. (i) Advances in India (a) priority Sectors (b) public Sector (c) banks (d) Others Total (ii) Advances Outside India (a) Due from banks (b) Due from Others Bills purchased and discounted Syndicated Loans Others Total Grand Total

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Schedule 9 Advances

Particulars Current Year

Previous Year

1. Premises

At cost on 31st March of the preceding year Additions during the year Deductions during the year Depreciation to Date

2. Other Fixed Assets (Including Furniture and fixtures)

At cost on 31st March of the preceding year Additions during the year Deductions during the year Depreciation to Date Total

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Schedule 10 Fixed Assets

Particulars Current Year

Previous Year

1.Inter office Adjustments(net)2.Interest Accrued3.Tax paid in advance/ Tax

deducted at Source4.Stationary and Stamps5.Non Banking Assets Accured

in Satisfaction of Claims6. Others

Total

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Schedule 11 Other Assets

Particulars Current Year

Previous Year

1. Claims against the Bank not acknowledged as Debt

1. Liability for partly paid Investments

2. Liability on account of outstanding forward exchange contracts

3. Guarantee given on behalf of constituents

(a) in India (b) outside india5. Acceptance, endorsments and

other Obligations6. Other Items for which the bank is

contingently liable Total

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Schedule 12 Contingent Liabilities