Working assignment:___

1. Translate the terms and expressions boldfaced into Russian

2. How does the bank make money (generate revenues)? Go to www.youtube.com to watch the following video lectures:

· “How Banks Literary Make Money?” (by The Silver Guild)

· “How is money really made by banks?” (by Positive Money).

· “How the Banking Industry Works?”

3. Explain the idea of overdraft.

4. Are shares issued by the public limited bank its assets?

5. They say that banking is an art of compromise. Why?

Go to www.youtube.com to watch a video lecture “At a Bank” by Twominuteenglish.com focusing on the words and expressions that might be useful when visiting a bank. Differentiate between major types of bank accounts (current / checking / deposit / loan, etc.).

Amazing facts about banks. Do you know that…?________________________

· An old man gained the trust of ABN Amro bank in Antwerp’s diamond district by bringing the workers chocolate. He was given VIP access to the bank vault in 2007 and stole $28 million worth of diamonds.

· A nine-year-old boy robbed a New York bank in 1981 by pointing a toy-gun at a teller and got away $118.

· Italian banks take Parmigiano cheese as collateral for loans and keep hundreds of thousand cheese wheels in their climate-controlled vaults for the 2 years it takes to mature.

INTRODUCTION TO ACCOUNTING / BOOKKEEPING

Jokes:_____________________________________________________________

There once was a business owner who was interviewing people for a division manager position. He decided to select the individual that could answer the question “how much is 2+2?”

The engineer pulled his slide rule and shuffled it back and forth, and finally answered, “ it’s between 3.98 and 4.02”

The mathematician said, “In two hours I can demonstrate it equals 4 with the following short proof”.

The physicist declared, “It’s the magnitude of 1x10’”

The logician paused for a long while and said, “This problem is solvable”’

The attorney stated, “In the case of Svensson vs. the State, 2+2 was declared to be 4”.

The social worker said, “I don’t know the answer, but I’m glad we discussed this important question”.

The trader said, “Are you buying or selling?”

The accountant looked at the businessman, then got out of his chair, went to see if anyonewas listening at the door and pulled the drapes. Then he returned to the business owner, leaded across the desk and said in a low voice, “What would you like it to be?” ________________________________

Every transaction (balance sheet transaction) executed by the bank has to be appropriately registered and booked in the bank’s balance sheet in accordance with the existing accounting regulations and procedures. A transaction is any event that affects the financial position of an entity and that an accountant can reliably record in money terms.

The balance sheet (statement of financial position) is a document that shows the financial status of a business entity, bank included, at a particular instant in time. Actually this is a sort of a snapshot of entity’s performance translated in accounting language. It has two counterbalancing sections. The left side lists the resources of the bank or firm or everything they own and control. The right side lists the claims against the resources. The resources and claims form the balance sheet equation:

For every business, including banking, the things than it owns are assets and those that in owes are liabilities. The difference between the two, which is how much more the business owns than it owes, is its equity or net worth. To be more precise, net worth (capital) is the amount of funds that would be available to the stockholders (owners) if the bank (entity) were to liquidate (go out of business or convert everything it owned into cash). This is represented by the original value of its common stock (shares) plus the additional funds, or surplus that it has acquired over the years.

A double-entry accounting system strictly followed by all accountants requires that when they record a transaction, they make at least two entries in their books so that the total assets always equal the total liabilities plus owners’ equity.

How do accountants make their entries? Do the procedures suggest that every transaction must always engage both sides of the balance-sheet equation?

This all depends upon the specific situation. The procedure is strictly determined to meet the requirements of the balance sheet equation as well as the rules of the double entry accounting. Sometimes it involves both the right and the left sides of the equation, sometimes only one side is affected.

Let’s suppose the bank purchases some new hardware for $100,000. The accountants will register this purchase by two entries. The transaction affects the balance sheet equation as follows: it increases one asset, bank’s Equipment, and decreases another asset, Cash, by the same amount. As a result the form of the assets change, but the equation remains. In accountant language we credited asset Cash and debited asset Equipment. In contrast, let’s suppose a customer deposited a sum of $100,000 in a bank. The transaction affects the balance sheet as follows: it increases both assets (Cash) and liabilities (Sight or Time deposits) by the same amount $100,000.

Depending on what is the financial nature of the specific entries (increase or decrease of funds) as well as what side of the balance sheet is affected, accountants are debiting or crediting funds. Based on this debit and credit entries in accounting will have opposite consequences.

For ASSETS debit means adding / increase of funds

Credit means deduction / decrease

For LIABILITIES is visa-versa:

Debit means deduction / decrease

Credit means adding / increase

This could be illustrated by the routine banking practice. Suppose your company has an account with the bank. And thanks to the successful deal the company gets some revenue transfer which affects your bank account. For the bank the funds on your account are liabilities, that’s why in order to inform you about the incoming sum the bank will have to send you credit advice. In contrast, when it deals with payments from your account the bank sends you debit advice.

How do the accountants know which balance item they will have to invoke while posting an entry? Except for knowledge and experience that are of apparent support plus highly computerized procedures, there is a book called Chart of Accounts which guides a bank or organization accountants in this matter. The items in the Chart of Accounts have corresponding code numbers according to major components of the balance sheet allocated in the Chart. For example, number 1 as a rule corresponds to assets, number 2 – liabilities, 3 – own capital, 4 – revenues, 5 – expenses, 6 – taxes. The second figure in the number further specifies the type of assets, liabilities, etc in question. For example number 11 means Cash, 14 – accounts receivable, etc. Specific Chart of Accounts may vary across countries and companies but its principles consolidated in GAAP (Generally Accepted Accounting Principles) remain the same.

An example of a balance sheet recommended by the International Labor Organization (ILO) for banks suggests some key asset items like:

CASH

Currency, including domestic

Balancies with Central Bank

Other currency

Дата добавления: 2015-11-14