Commercial Bank Accounting
Financial institutions vary in many ways from the traditional, non-financial organization. For many people, the inner-workings of financial institutions are complicated and difficult to understand. For accountants, the traditional rules and procedures used in non-financial institutions must be modified and extended when a financial institution is involved. Our focus in this paper is on one specific financial institution, the commercial bank. In this introductory manual, we will discuss the many reasons for the differences in bank accounting in attempt to give you, the accountant, a better understanding of accounting issues in this unique ...view middle of the document...
Section 2 also discusses the reporting requirements of commercial banks.
Our research of the areas discussed above uncovered a number of interesting differences between accounting for the commercial bank and traditional accounting practices. Some of the major findings are listed below:
„X A bank carries primarily cash assets, securities, and loans on its balance sheet.
„X The liabilities of the commercial bank are of two types: controllable and non-
„X A bank must meet specified capital requirements, which are set on both debt and
„X A bank¡¦s income and expenses are primarily earned and incurred in the form of
„X The changes in cash flows of a commercial bank are due to very different types
of transactions than cash flow changes of a traditional institution.
„X Many accounts listed on a bank¡¦s financial statements have different names than
their counterparts on the statements of non-financial institutions.
„X Accounting practices and procedures of financial institutions are very highly
regulated by agencies such as the Office of the Comptroller of the Currency, the
Federal Reserve Board, and the Federal Deposit Insurance Corporation.
„X Banks are generally required to undergo field examinations and submit quarterly
call reports as well as annual reports to give investors, creditors, and
regulators a clear picture of their financial condition.
Through extensive discussion of these topics and many more, it is our goal to give the typical knowledgeable accountant a better understanding of the atypical accounting rules that apply to the commercial banking industry. We urge the traditional accountant to study industries that have unique accounting requirements, such as commercial banking. Like the industry itself, the accounting practices are unique, and only through studying them can the accountant become aware of their many interesting aspects.
Introduction to Commercial Bank Accounting
Accounting for financial institutions differs from accounting for non-financial institutions in a number of ways. Although most large organizations of all types follow Generally Accepted Accounting Principles (GAAP), when dealing with a financial institution, additional rules and methods apply. This is because the array of account types is very different for a financial institution as compared to a non-financial organization. Traditional accounting practices are not sufficient for the unique aspects of a financial institution. The following pages will give an introduction to these unique qualities by illustrating the accounting framework for one financial institution, the commercial bank. The objective of this introduction to commercial bank accounting is to give the traditional accountant an overview of how accounting for financial institutions differs from traditional accounting practices. In...