National Bank Notes On Hand (15)

As implied by its title, this item represents the amount of this bank's notes on hand and unissued. The amount of National bank notes outstanding at any time would be the difference between the balance of this account and of the account "circulating notes outstanding" in the credit balance group. Banks operating under State law would, of course, have no need for such accounts on their ledgers, because State banks are taxed so high that it would be unprofitable for them to issue notes.

Accounts Receivable (16)

From day to day for any one of a number of reasons most banks pay out funds for their customers which the latter may not wish charged to their accounts. Such are outlays for registered and insured mail, cables, telegrams, and express charges. Having paid out its own funds for such items, the bank must have some place to keep the offsetting charge, or debit, and "accounts receivable" is used for that purpose. When a customer remits for the outlay made for his account, the balance shown is accordingly decreased.

Internal Revenue Stamps (17)

Banks find it convenient to carry a small supply of various denominations of revenue stamps which are used largely on time commercial paper. Customers frequently omit putting these stamps on their bills which makes it necessary for the bank to do so. Additional supplies of stamps purchased by the bank cause increases to the balance of the account. All stamps used cause decreases. The item obviously represents an asset as it is almost the equivalent of cash.

Due From Tenth National Bank, New York (18)

This is an asset account representing funds on deposit with a New York correspondent. The balance of this account is increased by remittances of commercial paper and currency, and it is decreased by all drawings made against it.

Five Per Cent Redemption Fund (19)

A deposit of 5% of the amount of circulating notes outstanding is required by the Treasurer of the United States Government. The fund is used to redeem the circulating notes of the bank, usually mutilated, which are shipped from time to time to the Treasurer for redemption. The redemption or payment of these notes causes a reduction of the bank's balance with the Treasurer, who calls for additional funds so as to bring the total up to 5% of the circulating notes. Upon compliance he sends notes to replace those which have been paid and destroyed. The five per cent redemption fund is clearly an asset of the bank.

Due From Federal Reserve Bank-Collection Account (20)

This is an asset account of the bank, representing for the most part checks drawn on out-of-town banks for which we have given our depositors credit, and which we are collecting through the Federal Reserve System. When the items are sent out this account is charged. As will be explained in more detail, on the automatic maturity date this account is credited, or reduced, and the reserve at the Federal Reserve bank is increased accordingly, provided it has not been reduced through other transactions.

Due From Other Banks - Collection Account (21)

Like account No. 20, this account represents checks on out-of-town banks in the process of collection, but the items handled through it are those which are collected outside of the Federal Reserve System, or through the bank's own correspondents. That is the only major distinction.

Expense (22)

Expense is a general term covering outlays for operating and administrative cost such as:



Commercial Agency Service

Directors' Fees


Depreciation on Building

Furniture and Fixtures



Stationery and Books



Telephone Service

This account called "expense" is the first debit balance item thus far discussed which is not an asset. The distinction should be carefully noted. It will be remembered that debit balances were classified into either assets (or resources) and expenses (or losses). It would be entirely in order to set up separate accounts for each of the items mentioned in the list above, especially for depreciation, furniture and fixtures, and taxes, but they are ordinarily carried on auxiliary records controlled by the major caption "expense." This makes fewer general ledger accounts. Furniture and fixtures is regarded by many banks as an asset, but as banks should carry no assets which would not yield at least their book value, the better practice perhaps is to consider any outlay for furniture and fixtures an expense.

Interest Paid On Deposits (23)

This is another account of the expense, or loss group, and the student is again advised to note the distinction between this and the items of an asset character such as cash, bonds, loans, etc. The expense or loss items cause decreases in the earnings of the bank. The asset items do not in themselves affect the earnings and the fact that interest is earned on assets should not be allowed to confuse the student.

Banking House And Lot (24)

It is obvious that this is an asset representing the value of the bank's premises.

Credit Balances

The following is an explanation of the credit items shown in the foregoing trial balance:

Capital Stock (25)

This item, known as a capital liability, represents the par value of the bank's outstanding capital stock. While this is in a sense a liability of the bank to the stockholders, it is indicative also of a liability on the part of stockholders to the bank, they usually being doubly liable under liquidation proceedings. That is to say, they may lose not only the funds that they invested, but also an amount equal to the par value of the outstanding capital stock of the bank. This is true under many State laws as well as under National bank laws.

Surplus (26)

Surplus is a capital liability of the bank, being for the most part accumulated earnings for very unusual contingencies. The surplus is not entirely accumulated through earnings because most banks organize with a paid-in surplus before they do any business. National banks are in effect required to have a surplus of 20% before they may open their doors for business. The obvious reason for this is that otherwise there might be an impairment of capital and it is believed that an application for a charter for a National bank which does not provide a surplus fund of at least 20% of the capital stock probably would not be looked upon with favor by the Comptroller of the Currency.