In the preceding chapter the sources of income which are ordinarily open to a bank have been outlined, and one of them - the rate of interest or discount - has been analyzed at some length. It is equally important to consider with care the various elements of cost which the bank is obliged to incur. Speaking generally, these elements of cost may be summarized as follows:

1. Fixed expenses - rent (or the interest on invest-ment in building and equipment), insurance, surety bonds, taxes, light, heat, etc.

2. Bad debts.

3. Overhead expenses - salaries of president and general officers not assigned to any specific duty.

4. Operating salaries.

5. Stationery, printing, postage, etc.

6. Allowance for interest on capital.

7. Depreciation of equipment and building.

Most of these expenses are sufficiently obvious to require no description or explanation. The bank, of course, must have some definite quarters and it gets these either by hiring them from others or by purchas-ing or building them. In any case there is either an annual outlay or a capital sum on which interest must be allowed which represents the cost of the bank's quarters or offices. In the same way the fixed expenses for lighting, heating, and caring for the offices of the bank must be provided for, and may be regarded as a fixed sum in a degree independent of the total amount of business the bank has to do and in a large measure independent of the amount of its capital.

The overhead expenses are in somewhat the same class as these fixed or plant expenses. Every bank has a certain number of salaried officers whose work when well done is of utmost importance to the institution, but whose pay cannot be assigned to any particular undertaking. They are "overhead" in the sense that they belong to or must be charged against everything beyond bank debts in due proportion - that is to say, they are salaries which are practically incident to the doing of any business and which have only a secondary relationship to the amount of such business. We shall presently see how the cost of such salaries is usually distributed among the different factors or divisions of the organization.