Gross earnings are derived from the value of the credit balance and from the exchange received on items deposited and collected. Profits on special transactions, such as letters of credit, foreign exchange, circulation and the like should be shown separately.

In an ordinary deposit account there are comparatively few items deposited drawn on out-of-town points, and the rates received for these are generally remunerative. However, in the case of wholesale merchants and other distributors who deposit a large number of cash items, the rate of exchange charged is generally low and frequently unremunerative, unless the destination and interest cost of the items has been taken into consideration in making the rate.

Therefore the first data to examine in this connection is the schedule of rates under which the account is operated. To the practised eye the weak points in the arrangement, if any, will at once become apparent.

It would, of course, be impossible to consider each item individually. The best method is to divide Canada into provinces or sections. The figures given for each province, etc., should be multiplied by the average number of days which items remitted to each section are outstanding. The result will represent the amount of items in transit outstanding on the basis of one day, and when divided by the number of days in the period will give the average amount outstanding. It is a simple matter for any branch to make a schedule showing the average time between the deposit of an item and the receipt of the relative clearing returns from various points in the country.

A statement should be made of checks drawn on banks in the same city, the returns for which are not received until after clearing the following day. An account could easily deposit $50,000 of local checks and have only $5,000 to $10,000 balance at the end of the day. In other words, the bank would be lending $45,000 overnight without interest. If this occurs daily, as it does to a great extent, it is a serious burden on the bank.

In allowing for the time an item is outstanding, it must be borne in mind that the loss of interest does not cease until the actual clearing returns are in the hands of the bank. Items sent to correspondents, therefore, are not finally disposed of until the relative settlement checks have been actually cleared at Montreal or Toronto, or on whatever central point the draft is drawn.

The gross amount of exchange received, less the correspondent's commission and interest value of the time in transit, will show the net profit or loss on exchange. An account should also receive credit for the net exchange received from collections and discounts. Interest is not an expense in connection with exchange on collections, but in arriving at the net exchange on discounts the time occupied in remitting or returning the items should be taken into account. The basis of rebate, if any, in connection with cash items or discounts should be looked into carefully, as this is a fruitful source of loss.