Charges And Interest Paid

Then with regard to the outgo, the two principal items are charges and interest paid. All expenses belonging to the term should be shown in charges account whether the money has been paid out or not. For example, if the bank pays $720 a year rent, payable half-yearly, and if the last payment was made on 31st August, two months before the end of the term, there would be two months' rent, or $120, to be debited to charges and credited to a suspense account till actually paid out. Also bills for stationery, electric light, gas, telephone, etc., are to be treated in the same manner. If the bank owes the money, it is to figure in the expenses of the year.

With regard to the interest on deposits, that must be calculated up to date and either credited to the depositors' accounts or reserved in the same manner as the rebate was reserved.

A specimen set of the entries passed through profit and loss account at the end of the quarter or half-year-closing entries they are called - follows:-

Profit And Loss Account

The profits transferred or credited to head office would make a good or bad showing according to whether they represented a high or low percentage on the amount of capital supplied to the branch by head office.

Capital Supplied To Head Office

If the deposits greatly overbalanced the discounts, probably the interest paid account would exceed the discount received account, and instead of a profit there would be a deficit to transfer. This would be regarded as a favorable showing if the deficit represented a low enough percentage on the average amount of capital supplied by the branch to head office during the term. As the deposits exceed the discounts, the branch will have supplied head office with capital drawn from the district, and this capital will be available for use by other branches whose discounts exceed their deposits. The deficit transferred to head office by the branch represents the cost to the bank of the capital drawn from its district.