A Study of Accounting of Banking Companies

From times immemorial, the banker has been an indispensable pillar of Economic Society all over the world.

He may have been missing in the good old days when self-sufficiency was the law of land and there was no existence of money economy. The introduction of division of labour however brought in its wake the use of money without which there was a peculiar complexity and trouble in matter of exchange. Money Economy in turn, could not do without the institution of banking for any considerable time. This study paper has been specifically prepared for looking into the accounting aspect of banking form of business.

We Will Write a Custom Case Study Specifically
For You For Only $13.90/page!

order now

So, for the purpose of the paper, a bank is not merely a financial services provider, it is rather to be taken as some entity being run to carry out some business activity and thus to earn some profit. In the Indian context, business of banking is largely governed by Banking Regulation Act, 1949 and some other statutes like Reserve bank of India Act, Companies Act, etc.

These statutes also provide for accounting aspects of a banking company so an attempt to cover all such provisions to some possible extent has also been made. INTRODUCTION: A developed banking system plays a crucial role in any economy. The banks play the role of financial intermediaries between the ultimate lenders and ultimate borrowers. Since banks mainly play with public money, there is a very strong need of managing their affairs well. The term ‘bank’ is derived from the Latin word ‘banca’ originally referred to as a bench or table on which the moneylenders, the forerunners of financial institutions, used to carry on their business.

In India, the genesis of banking institutions is found in the Culcutta Agency Houses, the trading firms, which undertook banking operations for its constituents. Prominent among these were Messrs Alexander & Co. and Messrs Fergusson & Co. and the bank of Hindustan which was merely an appendage of Messrs Alexander & Co. , was the earliest bank started under European Direction in India. Further, in 1809, the first Presidency Bank i.

e. the bank of Bengal was started followed by bank of Bombay in 1840 and Bank of Madras in 1843.

These presidency banks were amalgamated into the Imperial bank of India on 27th January, 1921 by the Imperial bank of India Act, 1920. Subsequently in 1955, the Imperial bank of India was converted into State bank of India by the State bank of India Act, 1955. Banking institutions include commercial banks, savings and loan associations, savings banks, and credit unions.

The major differences between these types of banks involve how they are owned and how they manage their assets and liabilities.

Assets of banks are typically cash, loans, securities (bonds, but not stocks), and property in which the bank has invested. Liabilities are primarily the deposits received from the bank’s customers. They are known as liabilities because they are still owned by, and can be withdrawn by, the depositors of the Financial institution. Until the early 1980s, the assets and liabilities of banks were tightly regulat