Bank’s Accounting System-Double Entry system-Charts of Accounts Preliminary ideas of General Ledger-Trial Balance

What is accounting?

Accounting is a way of recording, analyzing and summarizing transactions of an entity.

Assets: Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in money. Examples include cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles.

Liability: Liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

Income: Money that an individual or business receives in exchange for providing a good or service or through investing capital. Such as interest income, commission & fees etc.

Expenses: An expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. Such as Salaries and wages, Utility expenses, Administration expenses, Finance costs, Depreciation.

Double entry book keeping & Identification of debit & credits:

Double entry book keeping: The principle of double entry book keeping is that each transaction has two equal but opposite effect.

The rules of double entry book keeping:

Some examples for making the journal Entries from the following transactions:

1. Mr. Amin one of the customers of Jamuan Bank Ltd requested to issue a Pay Order amount of Tk.20,000 in favor of Mr. Rajib debiting to his account.

2. Advance rent paid of Tk.10,000 for Mirpur Branch.

3. Monthly rent of Tk.20,000 of which 50% paid in cash and balance amount adjust with advance rent.

4. A computer purchased of Tk.15,000 of which 75% paid in cash & 25% on credit.

5. A vehicle amount of Tk.50,000 purchased on 01.03.2012 which resale value will be Tk.10,000. Its useful life will be 4 years. Calculate the depreciation charged on vehicle in 2012 & 2013 and also make the journal entries.

6. Advance amount of Tk.1,00,000 paid to a land lord for purchase of a land.

7. A sum of Tk.5,000 paid to a supplier against credit purchase.

8. An amount of Tk.2,000 received from a credit customer.

9. Excess interest charges of Tk.5,000 against monthly scheme benefit.
10. Yearly estimated festival bonus is Tk.1,44,000. How much amount to be charge as monthly expenses and what will be journal entry? Bonus paid Tk.72,000 and make a journal for this transaction.

Basis for preparation of Banks accounts

The financial statements of the Bank are prepared on a going concern basis under historical cost convention and in accordance with First Schedule (Sec-38) of the Bank Company Act, 1991 as amended by Bangladesh Bank (Central Bank) vide BRPD Circular No. 14 dated 25 June 2003, other circulars of Bangladesh Bank, Bangladesh Accounting Standards (BAS), the Companies Act, 1994, the Listing Rules of the Stock Exchange, the Securities and Exchange Rule 1987 and other laws and regulations applicable in Bangladesh.

Revenue/expenses Recognition

1. Interest is calculated on daily product on unclassified loans and advances but charged on quarterly and monthly basis, where applicable.
2. Interest is charged on classified loans and advances by crediting interest suspense account as per BRPD Circular No 16 of 1998 and such interest is taken into income account upon realization. Interest on credit card outstanding is calculated on daily product but charged on monthly basis.
3. Commission and discounts on bills purchased and discounted are recognized at the time of realization.
4. For Islamic Banking, profit is charged on unclassified investments on daily product basis and charged to the clients on quarterly and monthly basis, where applicable.
5. Islamic Banking branches calculate profit on classified investments and credits the same to profit suspense account until realization.
6. Fees, commission and discounts on bills purchased and discounted are recognized at the time of realization.
7. Interest income on investments is recognized on accrual basis. Capital gain on investments in shares is also included in investment income. Capital gain is recognized when it is realized.
8. In terms of the provisions of BAS-1 “Presentation of Financial Statements” interest/profit and other expenses are recognized on accrual basis.

Charts of Accounts:

A chart of accounts (COA ): A chart of accounts (COA) is a financial organizational tool that provides a complete listing of every account in an accounting system. An account is a unique record for each type of asset, liability, equity, revenue and expense.

Preliminary ideas of General Ledger, Trial Balance:

General Ledger: A general ledger is a complete record of financial transactions over the life of a company. The ledger holds account information that is needed to prepare financial statements, and includes accounts for assets, liabilities, owners’ equity, revenues and expenses. Such as Capital, Investment, Loans & advances, other assets, other liabilities etc.

Trial Balance: Trial Balance’ A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit columns. A company prepares a trial balance periodically, usually at the end of every reporting period.