U. S. Currency (1)

Foreign departments, of course, require U. S. currency in their transactions for travelers' letter of credit purpopses and the like, throughout the day. The proof for this item in the foreign department is very similar to the proof for cash explained elsewhere. The teller maintains figures showing his opening cash, his receipts, and his payments. His closing figure is obviously his opening, plus receipts, less payments. The detail of cash transactions would be shown on his proof. The closing figure only would be entered opposite the item U. S. Currency on the statement.

Foreign Currency (2)

This account shows the dollar value of all foreign currency on hand as at the close of business each day. The auxiliary foreign currency ledger would, of course, give in detail the amount in dollar value of each currency of which a supply is kept on hand. The total dollar amount on the auxiliary records would prove with this item in the statement.

Internal Revenue Stamps (3)

A small quantity of stamps is usually kept on hand for the purpose of supplying any stamps which are missing from time bills. All sales or dispositions of these stamps cause decreases in the amount of stamps on hand and all purchases increase the item.

Dollar Ledger Accounts - Overdrafts (4)

As has been said, large foreign banks and firms and some individuals keep dollar balances with their American correspondents, and the gross amount of these dollar balances is shown under items 2 and 3 of the liabilities. However, owing largely to the in-transit time between continents, foreign accounts are more frequently overdrawn than are domestic, and the overdrafts are shown on the daily statement under this item. The net dollar ledger account balance would be the difference between item 3 on the assets and the total of 2 and 3 on the liabilities.

Due From Foreign Banks And Bankers - Foreign Currency (5)

Mention was made under a discussion of foreign trading of the fact that transactions in foreign exchange are largely transfers of title to portions of bank balances held by American banks abroad. An illustration was given showing how a balance in foreign currency may be acquired. The total book dollar value of all of the foreign currency balances must equal, as at the close of each day, the figure opposite item 5 of the assets. Sales of exchange decrease the item, and purchases increase it.

Due For Foreign Exchange Sold (6)

This item represents the balance due to the bank for exchange which it has sold during the past several days, but for which payment is suspended until the steamer sailing date, for checks, and the payable date abroad, for cable transfers.

Advances On Foreign Bills - Secured (7)

The dollar balance shown opposite this item is the total dollar amount as of the close of a given day, which has been advanced against secured foreign bills sent abroad for collection. Additional advances made increase the figure, while receipts of funds from abroad in payment of bills, decrease it. Secured bills are classified by some banks as only those with which collateral has been received, which collateral is kept until the bank is reimbursed. It is proper to classify as secured bills those supported by documents deliverable only on payment of the bills, the documents representing title to the goods shipped.

Advances On Foreign Bills - Unsecured (8)

As implied by the title, this is a group of unsecured bills on which dollar advances have been made. Common illustrations of unsecured bills are non-documentary bills and those whose documents are delivered at the time of acceptance of the bill by the foreign drawee.

Customers' Liability For Drafts Paid Under Letters Of Credit (9)

Banks which issue guaranteed travelers' letters of credit usually pay drafts drawn under those letters on presentation, and later collect the funds from the guarantor. Usually a traveler cashes a check at some one of the issuing bank's correspondent's places of business and the latter sends it to the issuing bank which in turn pays and charges this customer's liability account until reimbursement is received from the guarantor.

Customers' Liability For Acceptances Of This Bank (10)

A transaction in this account has been given in the foregoing paragraphs. The figures in the statement opposite this item represent the outstanding acceptances of this bank for which customers are indebted to it. While the acceptance itself is primarily the liability of the accepting bank, the customer has guaranteed to place the bank in funds, usually a few days before the maturity date of the acceptance, and this account represents the extent of the customer's liability.

Customers' Liability For Acceptance - Other Banks (11)

Banks with the more extensive foreign connections frequently issue commercial import letters of credit under which foreign banks accept the drafts of the foreign shipper. Upon notification of the fact of acceptance, the local bank makes a debit entry to cover the liability of its customer who has agreed to place it in funds to cover the acceptance, and it makes a credit entry in account No. 13 of the liabilities to show its own liability to the foreign bank on account of the acceptance made abroad. Thus, the acceptance accounts, Nos. 10, 11 and 12 in the assets, showing customer's liability due to the bank, offset items 12, 13 and 14 of the liabilities, these latter representing the obligations of the bank.

Liability Of Foreign Banks And Bankers For Dollar Exchange Acceptances (12)

This is simply an additional class of acceptances, namely, those made for the purpose of creating adequate dollar exchange for the benefit of foreign banks which sometimes find it desirable to build up dollar balances here in that manner. This is accomplished by a rather simple process: After the draft has been accepted and turned over to representatives of the foreign bank, it may be discounted anywhere for cash or for credit. This asset, account No. 12, represents the liability of the foreign banks to the accepting bank for reimbursement. Item 14 among the liabilities offsets this asset account.

Accounts Receivable (13)

Many small expenditures are made from time to time in an active foreign department for which reimbursement is obtained only after the customer for whose account payment has been made has been notified and remits or authorizes a charge to his account. Such are for example the advances made for wire and stamp charges.

Expenses (14)

Foreign departments as well as domestic incur various expenses depending upon their size. Many banks have gone so far as to separate completely their foreign from their domestic business, charging their foreign department with all expenses incurred in connection with it, such as salaries, stationery, rent and the like. In addition to these, there are other items which would be included in this expense account, such as cable expenses and wire charges. The balance of the expense account should be closed out at the end of each closing period as was explained for domestic profit and loss accounts in a previous chapter. Auxiliary records show the various items making up this expense item.

Interest Paid To Banks (15)

This is the interest which is paid on foreign dollar account credit balances. Many banks would prefer to set up a separate account not only for this interest item, but for other large items, such as salaries and stationery, as well. That is largely a local matter.

Contracts To Buy Exchange - Asset (16)

The nature of this item was explained in the foregoing paragraphs. It represents the total dollar value of all commitments or contracts to buy foreign exchange. As was said, the firm which agrees to deliver foreign exchange to the bank at a definite or determinable date, has committed itself accordingly, and that is in a sense an asset to the bank which is offset by the bank's liability to receive. The liability of the bank is reflected by the liability account "contracts to buy exchange - liability."

Contracts To Sell Exchange - Asset (17)

This account likewise was explained as the total dollar value of all contracts to sell foreign exchange, or portions of bank balances in foreign countries.

Due From General Banking Department (18)

This is the contact account between the foreign and domestic departments. If the foreign department liabilities exceed assets, there will be a debit balance in this account representing an amount due from the general banking department. If vice versa, the balance will be a credit and it will appear opposite item 18 of the liabilities.