FINANCIAL STATEMENTS AT A BANK

Financial statements at a bank are the same in the form and method of preparing as at any other business or organization, but they differ a little.

The Balance Sheet of a bank gives us a view of its financial situation at one point of time, usually at any day of a particular year. But we do not know what has happened between two balance sheets. This information is provided by the Income Statement (Profit and Loss Account) for the period in question. Neither statement is exactly uniform from bank to bank, but both contain certain essential features.

The largest asset of a bank is normally its total portfolio of loans. Deposits usually constitute the largest liability. Balance sheets usually include the following items listed as assets:

1. Cash on hand and due from banks – money in vaults, balances with other banks, checks in process of collection;

2. Investments – bonds, shares, etc;

3. Loans – to companies, the general public, etc;

4. Fixed assets – buildings, equipment, etc.

Items listed in the balance sheet as liabilities are:

1. Deposits – all money owed to depositors;

2. Taxes payable – national and local;

3. Dividends payable – decided on, but not yet paid.

The Income Statement records the income of a bank: interest on loans, return on investments, fees, commissions, service charges. The granting of credit provides the largest source of bank income. Typically, two thirds of a bank's yearly earnings result from interest on loans. Nine out of every ten money units they lend come from depositors' funds.

The following items normally constitute the main expenses in a bank's Income Statement: interest paid; salaries and other benefits; taxes.

A bank's accounting systems are designed to record and present many transactions that take place every day. Substantial reserves over and above statutory requirements are an indication to customers of the bank's strength, that it has run its business well and has retained profits in the business for future operations.

Vocabulary:

differ – відрізнятися

to happen – траплятися

neither – жоден

portfolio – пакет (цінних паперів)

money in vaults – гроші у вигляді готівки

to owe – заборгувати

to grant a credit – надати кредит

to run a business – вести справи, керувати бізнесом

Questions:

1. What does the Balance Sheet of a bank give us?

2. What is the largest asset of a bank?

3. What items listed as assets does the balance sheets usually include?

4. What does the income statement record?

5. What items normally constitute the main expenses in a bank's income statement?

6. What is the indication of the bank’s strength?

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