Chapter No.

2 Final Accounts of Banking Company

MEANING OF BANKING COMPANY

According to Sec. 5 of the Banking Regulation Act, 1949, a banking company
means the accepting, for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise and withdrawn by Cheque, Draft,
Order or otherwise. In short, a banking company means and includes any company
which carries on the business or which transacts the business of banking in India.
Therefore, any company which is engaged in trade or manufacture, which accepts
deposits of money from the public for the purpose of financing its business only, shall
not be deemed to carry on the business of banking. No company can use as part of its
name any of the words bank, banker or banking other than a banking company and, at
the same time, no company can carry on business of banking in India unless and until it
uses at least one of such words as part of its name.
Sec. 8 states that a banking company cannot deal directly or indirectly in buying or
selling or banking of goods except its legitimate banking business.

IMPORTANT ITEMS OF THE FINAL ACCOUNTS

(i) Inter-office Adjustments: The inter-office adjustments balance, if in debt,
should be shown under this head. Only net position of inter-office accounts, inland as
well as foreign, should be shown here. For arriving at the net balance of inter-office
adjustment accounts, all connected inter-office accounts should be aggregated and the
net balance, if in debit, only should be shown representing mostly items in transit and
unadjusted items.
(ii) Rebate on Bills Discounted: It is also known as Discount Received in
Advance, or, Unexpired Discount or, Discount Received but not Earned. Its treatment
is same as we do in the case of Interest Received in Advance. Thus,
(a) If it is given only in the Trial Balance: The same will be shown as a liability
and will appear in the liability side of the Balance Sheet.
(b) If it is given in adjustment: In that case, the same is deducted from the
income from Interest and Discount in Profit and Loss Account and the same
will also appear in the liability side of the Balance Sheet.
(iii) Money at Call and Short Notice: The deposits made by bank with other
banks and withdrawable only after giving a notice is called money at call and short
notice. These deposits can be withdrawn by giving 24 hours’ notice. Money at short
notice can also be withdrawn with 7 days’ notice.
 (iv) Bad Debts and Provision for Bad Debts: Entries are passed for writing
off bad debts and for making provisions for doubtful debts in the books of banks.
However, these entries should not be reflected in the final account of the bank, because
it may damage the reputation of the banks and the confidence of the public may be
lost. The Banking Regulation Act allows banks not to disclose the amount of Bad
Debts written off and provision for bad debts. The amount of provision for doubtful
debts is merged with “provisions and contingencies” while debiting it to Profit and
Loss Account. The said amount is deducted from the advances shown in the balance
sheet. It is necessary for banks to disclose the fact about existence of provision in the
statement of Accounting Policies.
(v) Non-banking Assets (Sec. 9): According to Sec. 9, “A banking company
cannot hold any immovable property, howsoever acquired, except for its own use, for
any period exceeding seven years from the date of acquisition thereof. The company
is permitted, within the period of seven years, to deal or trade in any such property for
facilitating its disposal”. Of course, the Reserve Bank of India may, in the interest of
depositors, extend the period of seven years by any period not exceeding five years.
(vi) Reserve Fund/Statutory Reserve (Sec. 17): According to Sec. 17, every
banking company incorporated in India shall, before declaring a dividend, transfer a
sum equal to 20% of the net profits of each year (as disclosed by its Profit and Loss
Account) to a reserve fund. The Central Government may, however, on the
recommendation of RBI, exempt it from this requirement for a specified period. The
exemption is granted if its existing reserve fund together with Share Premium Account is
not less than its paid-up capital. If it appropriates any sum from the reserve fund or the
share premium account, it shall, within 12 days from the date of such appropriation,
report the fact to the Reserve Bank, explaining the circumstances relating to such
appropriation.
(vii) Cash Reserve (Sec. 18): Under Sec. 18, every banking company (not
being a Scheduled Bank) shall, if Indian, maintain in India, by way of a cash reserve
in cash, with itself or in current account with the Reserve Bank or the State Bank of
India or any other bank notified by the Central Government in this behalf, a sum equal to
at least 3% of its time and demand liabilities in India. The Reserve Bank has the
power to regulate the percentage also between 3% and 15% (in case of Scheduled
Banks). Besides the above, they are to maintain a minimum of 25% of its total time and
demand liabilities in cash, gold or unencumbered approved securities. But every banking
company’s asset in India should not be less than 75% of its time and demand liabilities
in India at the close of last Friday of every quarter
 PREPARATION AND PRESENTATION OF FINAL ACCOUNTS
The final accounts of banking companies include the Profit and Loss Account
and the Balance Sheet. The financial year ends on 31st March, every year. The Banks
also prepare half-years accounts on 30th September, every year. The final accounts must
be audited by a person who is duly qualified under the law. Every banking company
must obtain the approval of the RBI regarding appointment of an Auditor. Three copies
of the Balance Sheet and Profit and Loss account, together with auditor’s report must
be submitted to the RBI within three months from the end of the period. Every banking
company must file three copies of the final accounts and auditor’s report with the
Registrar of Companies. These accounts are also presented in the Annual General
Meeting for the approval of the shareholders. The Banking Companies Rules 1949 also
prescribe that the accounts and auditor’s report should be published in a newspaper
circulating at a place where the banking company has its principal office, within six
months from the end of the period. The RBI can conduct inspection of the books of
accounts of the banking company at any time or on receiving direction from the Central
Government.
1) Final Accounts :
According to section 29 of the Banking Regulation Act, 1949, every banking
company is required to prepare with reference to that year a balance sheet and profit
and loss account on the last working day of the year in the Form ‘A’ and Form ‘B’
respectively as given in schedule III
 Form of Balance Sheet (Vertical)
Third Schedule
(Section - 29)
Form ‘A’
Form of Balance Sheet

Balance Sheet of ............................ Bank

as on 31-3-………
Schedule Current Previous
Particulars
No. Year Year
Capital and Liabilities
Capital 1
Reserve and Surplus 2
Deposits 3
Borrowings 4
Other liabilities and provisions 5
Total

Assets
Cash in hand and Balance with R.B.I. 6
Balance with other banks, money at call 7
Investments 8
Advances 9

Fixed Assets 10

Other Assets 11

Total
12
Contingent Liabilities
Bills for collection
1) Capital : It is a first item of Liabilities. It’s details are given in schedule-1.
Which contain authorized capital, issued, subscribed, called up and paid up capital.
2) Reserves and Surplus : It includes statutory reserves, capital reserves, share
premium, profit and loss account balance. The details of this are given in schedule
No. 2
3) Deposits : It contains demand deposits, saving bank deposits / accounts,
term deposits. The details are given in schedule No. 3
4) Borrowings : It includes borrowings from Reserve Bank of India, borrowing
from other banks and institutions and agencies. The details about it are given in
schedule No. 4
5) Other liabilities and provisions : It includes Bills payables, Branch Office
/ interoffice adjustment credit balance, interest outstanding / accrued on deposits,
provision for taxations, Rebate on bills discounted etc. and shown in schedule No. 5
6) Cash in hand and balance with R.B.I. - It includes cash in hand including
foreign currency notes, and balance with Reserve Bank of India. Details are given in
Schedule No. 6
7) Balance with other banks, Money at call and short notice - It contains
balance with other banks, money at call and short notice. These are shown in schedule
No. 7

8) Investments - Investment in Government securities, other approved securities,

investment in shares / debentures and bonds, gold are shown under this heading. The
details are given in schedule No. 8
9) Advances - It gives details about loans and advances granted by bank. It
includes loans cash credit and overdraft, Term loans, bills purchased and discounted.
The details are given in schedule No. 9
10) Fixed Assets - Premises, Furniture and Fixtures and other fixed assets are
shown under this head. The details are given in schedule No. 10.
11) Other Assets - It includes advance taxes, stationery and stamps on hand,
Branch adjustment (Dr. bal.), Interest accrued on advances, non banking assets etc.
Details are given in schedule No. 11
12) Contingent Liabilities - It indicate the liabilities which are not provided in
Balance Sheet. It includes liabilities on partly paid shares, claims against bank not
acknowledged as debts; acceptances endorsement and other obligations etc. Details
are given in schedule No. 12
 13) Bills for collection - It includes bills receivables received on behalf of
customers for collection. These are shown outside the Balance Sheet.
Form of Profit and Loss Account (Vertical)
Form ‘B’

Form of Profit and Loss Account

For the year ended on 31-3-…………….

Schedule Current Previous

Particulars
No. Year Year
I. Income
Interest earned 13
Other Income 14
Total
II. Expenditure
15
Interest expended 16
Operating expenses
Provisions and Contingencies

Total
III. Profit/ Loss
Profit /Loss brought forward (op. bal)
Net profit/loss for current year.

Total
IV. Appropriations
20% transfer to Statutory Reserve
Transfer to other reserves
Proposed Dividend/Interium Dividend
Balance carried over to
Balance Sheet.
Total
 Income : It includes interest earned or discount received by bank on advances
or bills discounted, income on Investments, Interest on balance with R.B.I,
etc. It is shown under schedule-13
Other Income : includes commission exchange and brokerage, profit on sale
of investments, profit on revelation of assets, Dividend from subsidiaries.
These are shown in schedule No. 14.
Expenditure : These are shown under three different heads viz. interest
expended, operating expenses and provisions. Interest expended includes
interest paid by bank on deposits and borrowings. It is shown under schedule
No. 15. Operating Expenses of bank such as salaries and allowances to staff
and officers, Rent taxes rates, printing & stationery, Advertisement,
depreciations on bank property etc. are shown under schedule -16, Provisions
include provision made for dorebuttul debts, tax provisions and other
contingencies.
Profit / Loss : It shows the profit or loss balance of last year and current year
Net Profit (i.e. difference between Income and expenditures)
Appropriations : Amount transferred to statutory reserve and other reserves,
proposed dividends are shown under this heading.

Various Schedules :
Schedule No. 1 - Capital

Particulars Current Year Previous Year

Authorised 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 in arrears ...................
.............
Add : fortified shares Total

Schedule No. 2 - Reserves & Surplus

As on 31-3-....... Previous
Particulars
(Current Year) Year
I. Statutory Reserves
Opening Balance
Additions during the year
Deductions during the year
II. Capital Reserves Opening
Balance Additions during
the year Deductions during
the year
III. Shares Premium
Opening Balance
Additions during the
year
Deductions during the year
IV. Revenue and other Reserves
Opening Balance
Additions during the year
Deductions during the year
V. Balance in Profit and Loss Account
 Total
(I+II+III+IV+V)

Schedule No. 3 - Deposits

As on 31-3-....... Previous
Particulars
(Current Year) Year
A. I. Demand Deposits
(i) From banks
(ii) From others
II. Savings Bank Deposits
III. Term Deposits
(i) From banks
(ii) From others Total
(l+ll+lll)
B. (i) Deposits of branches in India
(ii) Deposits of branches
outside India
Total

Schedule No. 4 - Borrowings

Particulars As on 31-3- Previo

....... us
 (Current Year) Year

I. Borrowings in India
(i) Reserve Bank of India
(ii) Other banks
(iii) Other institutions and agencies
II. Borrowing outside India
Total (I + II)
Secured borrowings included in I & II above
Rs. ..................

Schedule No. 5 - Other Liabilities and Provisions

As on 31-3-....... Previous
Particulars
(Current Year) Year
I. Bills payable
II. Inter-office adjustments (net) (cr.)
III. Interest accrued
IV. Others (including provisions)
Total

Schedule No. 6 - Cash & Balances with Reserve Bank of India

As on 31-3-....... Previous
Particulars
(Current Year) Year
Cash in hand
(including foreign currency notes)
Balances with RBI
(i) in Current Account
(ii) in Other Accounts
Total (I + II)
 Schedule No. 7 - Balances with Banks & Money at call & short Notice

As on 31-3-....... Previous
Particulars
(Current Year) Year
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
Total
Outside India
(i) In Current Accounts
(ii) In other Deposit Accounts
(iii) Money at Call and Short Notice
Total
Total Grand Total (I + II)
 Schedule No. 8 - Investments

As on 31-3-....... Previous
Particulars Year
(Current Year)
Investments in India in
(i) Government securities
(ii) Other approved securities
(iii) Shares
(iv) Debentures and Bonds
(v) Subsidiaries and/or joint ventures
(vi) Others (to be specified)
Total
Investments outside India in
(i) Government securities
(including local authorities)
(ii) Subsidiaries and/or joint ventures abroad
(iii) Other investments (to be specified)

Total Grand Total (I+ 11)

Schedule No. 9 - Advances

As on 31-3-....... Previous
Particulars
(Current Year) Year
i) Bills purchased and discounted
ii) Cash credits, overdrafts and loans
repayable on demand
iii) Term loans
Total
i) Secured by tangible assets
ii) Covered by Bank/
Government guarantees
iii) Unsecured
 Total
Advances in India
(i) Priority Sectors
(ii) Public Sector
(iii) Banks
(iv) Others
II. Advances Outside India
(i) Due from banks
(ii) Due from others
(a) Bills purchased and discounted
(b) Syndicated loans
(c) Others
Total

Total Grand Total (C.I.+ C. II)

Schedule No. 10 - Fixed Assets

As on 31-3-....... Previous
Particulars (Current Year) Year
I. Premises
At cost an on 31st March of the
preceding year
Additions during the year
Deductions during the year
Depreciation to date
II. Other Fixed Assets
(Including furniture & fixtures)
At cost as on 31st March of the
preceding year
Additions during the year
Deductions during the year
Depreciation to date
Total (I + II)
 Schedule No. 11 - Other Assets

As on 31-3-....... Previous
Particulars Year
(Current Year)
I. Inter-office adjustment (net)
II. Interest accrued

III. Tax paid in advance /tax deducted

at source
IV. Stationery and stamps.

V. Non - banking assets acquired

in satisfaction of claims
VI. Others.

Total

Schedule No. 12 - Contingent Liabilities

Particulars As on 31-3-....... Previous

(Current Year) Year
I. Claims against the bank not
acknowledged as debts
II. Liability for partly paid investments
III. Liability on account of
outstanding forward exchange
contracts.
IV. guarantees given on behalf of constituents
(a) In India
(b) Outside India
V. Acceptances, endorsements and,
other obligations Other items for
which the bank is contingently
liable Total
 Schedule No. 13 - Interest Earned

As on 31-3-....... Previous
Particulars Year
(Current Year)
Interest /discount on advances/bills
Income on investments
Interest on balances with
Reserve Bank of India and
other inter-bank funds
Others
Total
Schedule No. 14 - Other Income
As on 31-3-....... Previous
Particulars (Current Year) Year
Commission, exchange and brokerage
Profit on sale f investments
Less : Loss on sale of investments
Profit on revaluation of investments
Less : Loss on revaluation
of investments
Profit on sale of land,
buildings and other assets
Less : Loss on sale of land,
buildings and other assets
Profit on exchange transactions
Less : Loss on exchange transactions
Income earned by way of dividends etc.
from subsidiaries / companies and/or
joint ventures abroad/in India
Miscellaneous Income
Total
 Schedule No. 15 - Interest Expended

Particulars As on 31-3-....... Previous

(Current Year) Year
Interest on deposits
Interest on Reserve Bank of India /
Inter - bank borrowings Others
Total

Schedule No. 16 - Operating Expenses

Particulars As on 31-3-....... Previous

(Current Year) Year
I. Payment to and provisions
for employees
II. Rent, taxes and lighting
III. Printing & Stationery
IV. Advertisement & Publicity
V. Depreciation on bank’s property
VI. Directors fees, allowances
and expenses
VII. Auditors fees and expenses
(including branch auditors
fees and expenses)
VIII. Law charges
IX. Postages, telegrams, telephones etc.
X. Repairs and maintenance
XI. Insurance
XII. Other expenditure

Total
Important Adjustments/items and their effects in Bank
Final Accounts:
1) Depreciation on bank property :
If it is asked to charge on original cost but written down value of asset
is given then add amount of depreciation to the W.D.V. for getting original
cost of asset.
a) Show the asset at its original cost in schedule No. 10 and deduct
the total amount of depreciation from original cost.
b) Show the amount of depreciation of current year in operating
expenses schedule No. 16
2) Rebate on bills discounted / unexpired discount :
If it is given in trial balance - show in Schedule No. 5 if it is given for
adjustment:-
a) Deduct the amount of rebate from Interest and discount in
Schedule No. 13
b) Show the amount of rebate in other liabilities and provisions in
Schedule No. 5
If it is overvalued then deduct from rebate amount and add in interest
and discount in
Schedule No. 13
If it is under - valued then add the amount in rebate and deduct from
the interest and discount in Schedule-13
3) Provision for bad and doubtful debts :
Deduct the amount of provision from loans, cash credit and
overdrafts in Schedule No. 9 and put the amount of provision in P &
LA/c under the head provision
4) Provision for taxation :
Show the amount of provision for tax in profit & loss account (Form
‘B’) under provision or other provisions and show the same amount of
Provision in Schedule No. 5 (other Liab. and Provisions)
5) Statutory Reserve :
To transfer to statutory reserve is a statutory provision and hence not
clearly stated in adjustments: Therefore every year transfer 20% of
current years profit to statutory reserve.
Firstly add in statutory reserve in Schedule No. 2 and then show in
appropriations (P & L A/c)
6) Acceptances, Endorsements on behalf of Customers :
It is a contingent liability and not actual liability hence it is shown only
in Schedule No. 12 as it has no effect on tally of Balance Sheet.
7) Bills for Collection :
These are bill send by customers to bank for collection. These are
not asset or liabilities of bank. Bank is just acting as an agent in this
regard. It is shown outside the Balance Sheet just below the contingent
liability.
8) Gold/Silver :
Gold is shown in Schedule NO. 8 (Investment) while silver is shown
in Schedule No. 11 (Other Assets)
9) Accrued Interest on investment-
If it is given in trial balance, show it in Schedule No. 11 (Other Assets)
If it is given for adjustment then show in Schedule No. 13 and
Schedule No. 11
 Key Words :

1) Non banking assets :

The assets which are not required for banking operation are called as
non banking assets. These are acquired by bank against security of loans
advanced.

2) Money at call and short notice :

Such loans are advanced by banks from surplus cash to the needy
banks loans repayable within 24 hours are termed as ‘Money at Call’.
Loans repayable by a notice of seven days are termed as ‘Money at Short
Notice’.
3) Bad debts :

Such part of advances, which is irrecoverable from clients.

4) Rebate on bills discounted :

This is a amount of discount received in advance. Bank discounts the
bill, gets discount on it, but some amount received on discounting of bill
may relate to next year. Such amount of discount related to next year but
received in current year is treated as rebate on bills discounted.
5) Contingent Liabilities :
This is a liability, which is not actual liability but may occur in future.
6) Letter of Credit :
It is a letter addressed by a banker certifying that a person named
therein is entitled to draw on him a credit up to certain limit. Unpaid
balance of this letter on the Balance Sheet date form s liability of the
issuing bank.
7) Unclaimed Dividends :

It is a amount of dividend which is declared by bank but not

collected by share holders it forms part of liability of a bank.