V. Classification Of Assets And Liabilities
Description
This section is from the book "Banking And Business", by H. Parker Willis, George W. Edwards. Also available from Amazon: Banking and Business .
V. Classification Of Assets And Liabilities
The bank's assets and liabilities first were viewed as independent items and in the previous section they were considered in relation to one another. From this survey, it is evident that the accounts fall logically into several distinct classes which will be briefly analyzed. In general, assets may be divided on the basis of Liquidity as follows: (1) cash in the bank, (2) amounts due from banks, (3) loans and investments, (4) real property. Naturally cash is the most liquid resource, and a certain amount must be kept in the till as a means of immediate payment, and in the bank vault as a dormant reserve for emergency. But this money is idle, and an oversupply tends to reduce earnings.
Assets | |
Loans and discounts | $50,000.00 |
Overdrafts.................... | 150.00 |
Customers' liability under letters of credit and acceptances........... | 3,000.00 |
United States bonds and certificates of indebtedness..... | 25,000.00 |
Stock of Federal Reserve bank...... | 3,600.00 |
Banking house......... | 20,000.00 |
Furniture and fixtures...................... | 7,000.00 |
Lawful reserve............ | 3,000.00 |
Cash in vault................. | 66,916.66 |
Due from other banks........... | 20,000.00 |
10,000.00 | |
Redemption Fund.. | 400.00 |
Interest paid....... | 83.34 |
$ 209,150.00 | |
Liabilities | |
Capital................. | $100,000 |
Surplus.................. | 20,000 |
Interest and discount collected but not earned | 100 |
Circulation outstanding............... | 20,000 |
Demand deposits.... | 34,550 |
Time deposits.............. | 1,000 |
Certified checks...... | 500 |
Cashier's checks...... | 2,000 |
Bills payable with Federal Reserve bank... | 3,000 |
Due to banks........ | 15,000 |
Bills rediscounted..... | 10,000 |
Letters of credit outstanding.................... | 3,000 |
$ 209,150.00 | |
The second group, due from banks, includes: (1) lawful reserves from Federal Reserve bank, (2) due from other banks, (3) exchanges for the clearing house, (4) checks on other banks in the same city, (5) items with the Federal Reserve bank in process of collection.
An account with the Federal Reserve bank can be drawn upon immediately and is thus the equivalent of cash. Similar availability is found in balances due from other banks. Exchanges on the clearing house and checks on other banks in the same city are practically demand claims. Items in process of collection, of course, are payable only after a period of time which may take several days.
The third group of loans and investments will vary in liquidity, depending upon the maturity of the loans and the marketability of the investments. The bank's building, equipment, and ground are distinctly fixed assets.
The liability accounts may best be grouped according to the parties who have claims against the bank - namely, (1) stockholders, (2) depositors, (3) other banks, (4) general public.
The stockholders are really the owners of the capital, surplus, undivided profits, and unpaid dividends. The depositors may be individuals, banks, or governments, and they have claim to balances which may be payable on demand or on time. The bank is also debtor to outside institutions which have loaned on bills payable or rediscounts, and to persons who are holding its obligations in the form of circulating notes, cashiers' checks, certified checks, acceptances, and letters of credit.
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