Yearly balance sheet and the account for profit and loss made by banking societies
Yearly
balance sheet and the account for profit and loss made by banking societies
Troaca, Victor
22. October 2008
Yearly balance sheet and the
account for profit and loss made by the banking societies
Victor
Troacă, Conf. univ. dr.
University „Constantin
Brancusi” Tg-Jiu
ABSTRACT. The banking
societies, as economical entities with specific activities inside the economy,
draw up yearly financial situations, as well as in the situations designedly
specified by the lawgiver. The financial yearly situations which the banking
companies are compelled to draw up and at the same time to assure their
publication, are made up of a unitarian documents system, namely: balance
sheet, account of profit and loss, situation of modifications of proper
capitals, situation of cash ebbs and flows and explanatory notes. To ensure a
whole conformity with the European practice, as well as the assurance of
comparability of yearly synthesis information presented by the Romanian banking
companies with those of European banking companies, the contents, the structure
and the way of drawing up of these documents has been designedly regulated by
the Romanian authorities. These situations are presented as a unity whole and
in a clearer manner in order to reflect the faithful image of the assets,
debts, financial position, profit or loss and also of treasury ebbs and flows
of the concerned bank.. The indicators presented inside the yearly financial
situations made by the banking companies, have s synthesis character,
reflecting different states or components of their acitivity, and the knowledge
of content and their significance is being essential both in drawing papers and
subsequently in the analysis of grouped
or individual indicators or the ensemble activity of one or another of the
banking societies. The balance sheet and the account of profit and loss have a central
place in the ensemble of these yearly sinthesis documents, for which reason our
analysis should focus on their presentation.
1. General
aspects and specific regulations
In accordance with the general and specific accountancy
regulatings, banking societies make yearly financial situations by means of
which reflects their situation out of accountancy and financial point of view.
Yearly financial situations are meant to give a tenacious copy image of the
assets, of the involved bank financial position as well as the profit and loss
coming from the development of activity. The yearly financial situations offer
at the same time an image on the treasury flows of the involved banking
society.
To ensure some complex information but at the same time in
concordance with the financial situations made by the European banking
societies, with a view to assure a comparison of information at European level,
the Romanian accountancy regulatings have been in keeping with the European
ones.
Therefore, nowadays, the form and contents of yearly
financial situations, general accountancy principles and rules of evaluation of
elements presented in the yearly financial situatins, as well as the rules of
drawing up, approval, audit and publication of yearly financial situations and
consolidated financial yearly situations of banking societies are regulated by
a series of accountancy regulations according to the European directives
applicable to credit institutions.[1]
The regulations are meant to ensure the comparison and transparence of
accountancy information and of those of financial nature supplied by Romanian
banking societies through the yearly financial situations. A convergence is
assured, of form and contents of yearly financial situations, of the principles
of general accountancy and of valuation rules of elements presented in the
yearly financial situations, as well as the rules for drawing up, approval,
audit and publication both of yearly financial situations and consolidated
yearly financial situations.
The regulations issued by Romanian authorities are applicable
to banking societies which are Romanian juristic persons and to branches from
Romania of the foreign banking institutions. In accordance with these
regulations, the yearly financial
situations that are compulsory for the banking societies are made up of:
balance sheet; account for profit and loss; situation of modification for
proper capitals; situation of cash flow;
explanatory note.
These situations must be presented as a whole unit and very
clearly, in order to show the tenacious image of the assets, debts, financial
position, profit or loss and of treasury flows of the involved bank. In order
to ensure a very retentive image, additional information can be presented as
compared to the compulsory ones imposed on by means of regulations.
One must specify that the subunits without juristic
personality, belonging to a banking society, a Romanian juristic person,
organizes and manage the proper accountancy till the level of verifying balance
sheet, without having the obligation of drawing up the financial situations,
this obligation devolving upon the central administration of the respective
bank.
In the case when a banking society, a Romanian juristic
person, develops an activity also abroad by means of some subunits having no
juristic personality, their activity is included in the financial situations of
the bank Romanian juristic person and reported on the territory of Romania.
2. Balance
sheet
The balance sheet drawn up by the banking societies is
defined, according to bookkeeping regulatings conformable to European
directives, as being a synthesis accountancy document by means of which the
assets elements are presented, also debts and proper capital of a bank at a
certain date, which is the end of a financial exercise, as a rule. The balance
sheet is also drawn up in other situations, not only at the end of a financial
exercise. These types of situations are designedly stipulated by means of legal
regulations.
Inside the group of balance sheet elements is to be applied
the principle of liquidation (for assets) and the principle of exigibility, for
liabilities elements. Thus, the grouping of assets elements in a balance sheet
is made following their type and the degree of liquidation, from the liquid to
the less liquid, and the debts are grouped according to type and exigibility,
from the shortest to the ones with longer exigibility. The balance sheet
indicators are to be presented as follows, accompanied by a presentation of
their contents.
2.1. Description
of assets elements of balance sheet
The patrimonial elements of assets which are implies in the
activity of a bank are grouped, in a balance sheet, as follows:
Cash, money supply , comprises: cash which is to be
found at the bank pay office, banknotes and Romanian and foreign coins which
have a legal rate of exchange; the cash in ATMs and ASVs; travel cheques bought
and not handed for cashing to the issuers; balances of money supplies accounts
at central banks and issue institutions from Romania and/or from the countries
where they are put, provided that these should be easily available an dat any
moment; Public effects and other titles accepted for refunding at central banks
, comprise:
tresorery certificates and debentures on
public organisms issued in Romania, as well as the instruments of the same kind
issued abroad in the situation they are accepted for refunding by the National
Bank of Romania and/or by the central bank of the country where is the bank
concerned; other titles accepted for refunding by the National Bank of Romania
and/or central bank of the country where the bank concerned finds itself.
Debts on the credit institutions ,
referring to the debts that come from bank transactions, held by the involved
bank which makes the financial situations , on the national or foreign credit institutions,
central banks and international and national official banking organizations.
Here they are not included debts represented by bonds or any other titles.
Debts on clients, comprise debts for foreign and national
clients, others than credit institutions, whatever their name may be, except
for the debts represented by debentures or any other title, that presents
itself separately.
Debentures and other titles with fixed income comprise the
obligations and other titles with negotiable fixed income, issued by the credit
institutions, by other societies or public bodies. Debentures and other titles
with fixed income issued by public bodies included within this position
referred only to those which were not accepted for refunding by the National
Bank of Romania and/or central bank of the country where the bank concerned
finds itself, which is to be registered in a separate position. Negociable and
refunded proper debentures are separately pointed out.
Shares and other titles with variable revenue , comprise shares
or other titles with variable revenue that the bank holds, others beside those
held inside legate trade companies, which are distinctly pointed out.
The interests, comprise the interest titles or other titles
having similar contents held by the bank The interests at the credit
institutions are separately pointed out.
Parties inside legate trade companies comprise fixed values
represented by shares or other titles with variable revenue held by the bank at
its branches on which it has control, materialized in the authority to lead operational and financial policies of
the concerned company ,with a view to get benefits
Intangible assets, comprise net value of the elements of
intangible assets held by the bank.
Tangible assets, comprise net value
of the elements of tangible assets, held by the bank. Other assets, comprise
other assets that are not comprised in other positions.(posts)
Expenses registered in advance and unengaged revenues, comprise
the expenses made in advance which are to be paid at intervals as expenses, on
the basis of a bills payable book, during the periods or future financial
exercises (subscriptions, rents, insurance policy, interests and commissions
paid in advance etc) and which are not to be found in debts accounts and
attached debts, as well as the debts coming from revenues to receive
ascertained as a rule, at the end of the year and which are not to be found in
the attached debts accounts.
2.2. Description
of liabilities positions of the balance sheet
Balance sheet comprised in the liabilities of the
accountancy balance sheet concluded by the banking companies, group the
following elements, which we try to characterize concisely:
Debts concerning credit institutions, comprise all debts that
result from banking transactions of the bank that draws up the financial
situations, as compared to the national and foreign credit institutions,
central banks and international and national official banking organizations.
Subordinated debts and the ones representing bonds or any other title that
presents itself in separate positions/
posts.
Debts regarding the clients, comprise the amounts the clients
have to receive, other than the credit institutions mentioned before. Subordinate
debts are not to be included in this position, as well as those represented by
bonds or any other title which is presented in separate positions.
The debts concerning the clients are presented grouped, on
debts made from deposits, at sight and at term, and other debts, at sight and
at term, too. The deposit certificates are not comprised in this position,
which are negotiable titles, presented in other position.
Debts made by titles, comprise both bonds and debts for which
the negotiable certificates have been issued, especially deposit certificates
that are negotiable titles, interbanking market titles and negotiable debts
titles, bonds and other titles having fixed revenue, as well as the debts which
result from proper acceptances and bills payable to order in circulation,
except for the subordinate debts. One may understand by proper acceptances
exclusively those issued by the respective bank for its proper financing and in
which it appears through debitor (drawn).
Other liabilities, comprise other liabilities elements which
are not to be found in other positions of liabilities in the balance sheet.
Incomes registered in advance and engaged debts, comprise the
incomes registered in advance (discount,agio and commission of administration
for factoring operations, interests, commissions, rents cashed in advance,
premii of issue negative, etc. that are to be allocated for incomes during the
future periods and which are not found in the receivable claims and attached
debts, as well as the debts afferent to payment expenses ascertained, as a
rule, at the end of the year and that cannot be found in the accounts of
attached debts.
Provisions, comprise
those ones made by the bank in accordance with the legal regulations.
The subordinate debts, comprise the funds coming from the issue
of titles or from subordinate loan, whose reimbursement, in case of liquidation
of the involved bank, is possible only after the payment of other debtors;
Subscribed capital,comprise all the amounts, no matter their
naming, which, depending on the juridical form, are regarded as being
subscribed parties by the shareholders or partners, in accordance with the
national legislation.
Capital premii, comprise capital premii made by the bank,
coming from the issue, fusion, new contributions of capital, division,
conversion and other premii, according to legal regulations.
Reserves, comprise legal reserves, reserves for banking risks , statutory
or contracting reserves and other ones, except those reserves for revaluation,
which present themselves separately.
Reserves from revaluation,
comprise the reserves from the revaluation made in accordance with the legal
provisions of patrimonial elements.
Proper actions, comprise the value of proper actions rebought,
according to the legal regulations.
Reported result, comprises the result or partie from the result
of the preceding financial exercise that were not distributed by the general
essembly of the shareholders as well as other elements specially
mentioned.
Result of financial exercise, comprises the profit or loss
achieved by the bank in the current financial exercise.
2.3. Elements
outside the balance sheet
The specific of banking activity, determines the
registering of a huge volume of operations outside the balance sheet, grouped
into:
§ Contingent
debts, comprise all the transactions trough which the bank has
guaranteed the obligations of a third party. The engagements representing
endorsements of rediscount effects, as well as the acceptances - others than
the proper ones. As for the guarantees and the assets charged, which present
themselves as a distinct element, that comprises all the assumed guarantees and
assets warranted in the account of a third party, especially the balls and
irrevocable letters of credit. The significant guarantees in comparison with
the ensemble of bank activity, issued by this one, present themselves in
explanatory notes, as kind and value of engagement type.
§ Engagements,
extrabalance sheet element, that comprises all the irrevocable engagements of
the bank which may cause a risk. The significant engagements as reported to the
ensemble of the bank activity present themselves in explanatory notes.
3. The
account for profit and loss
The account for profit and loss is a synthetic picture in
which the elements of incomes and expenses are pointed out, as determining
elements of the result obtained from the activity developped by a bank for the
administration period to which it refers, concretized in the registered profit
or loss.
We shall present now some of the indicators belonging to
the structure of account of profit and loss of a bank, namely:
Interests to receive and assimilated revenues, indicator which
comprises incomes generated by banking activity, including:
§ Achieved
revenues generated by the patrimonial elements included in the following
positions from the assets of banking balance sheet: cash and money supply at
central banks, public effects and other titles accepted for refunding at
central banks, debts on the credit institutions, debts on clients, debentures
and other titles with fixed income and other assets, whatever they may be
calculated;
§ Revenues
resulted from the operations at term, covered, spread out on the effective
duration of operation and which have an interest character;
§ Taxes
and commissions to receive, with interest character and calculated in
accordance with the duration or value of debt or given engagement;
Interests to pay and assimilated expenses, reflect the expenses
generated by the developed banking activity, comprising:
§ Expenses
coming from patrimonial elements of a bank inscribed in the following positions
of the liabilities of balance sheet : debts regarding credit institutions;
debts concerning the clients; debts made by titles; other liabilities;
subordinate debts, whatever these expenses may be calculated;
§ Expenses
resulted from the operations at term covered, spread out on the effective
duration of the operation and which have an interest character;
§ Taxes
and commissions to pay, with an interest character and calculated depending on
duration or value of debt or the received engagement;
Revenues concerning the titles, indicator that comprises the
value of dividends and of other revenues afferent to shares, interests and
parts detained inside the legate companies.
Revenues
from commissions, comprise the revenues afferent to services given to
third parties, without diminishing the revenues included in the indicator
„Interests to receive and assimilated revenues”. The revenues from the
commissions included in this type of indicator are:
§ Commissions
for guarantees, credits administration in the account of other creditorsand for
the transactions with titles in the account of a third party;
§ Commissions
for the payment of trade operations and other revenues that are afferent to
these ones, commissions for the administration of accounts and commissions to
keep in custody and administration of titles;
§ Commissions
perceived for the exchange operations and for sale and purchase of coins or
precious metals in the clients’account;
§ Commissions
perceived in a capacity of intermediary for credit operations or disposal of
agreements of economies and insurances;
§ Expenses
from commissions, comprise the expenses afferent to services made by
thir parties, others beside those included in the indicator „Interests to pay
and assimilated expenses”.
Profit or net loss out of financial
operations, is made up of:
§ Net
result out of transactions with titles which have not character of financial
fixed assets and the corrections and taking again from corrections on the value
of these titles;
§ Net
result from the exchange operations, without causing a prejudice to the
revenues from the interests to receive and the revenues assimilated and the
expenses concerning the interests paid and expenses assimilated presented at
the first two indicators above;
§ Net
result from other sale and purchase operations that imply financial
instruments, including precious metals.
Other revenues from operation, comprise the other expenses
of operation which are not comprised in
the other positions of the balance sheet;
General administration expenses, include all the expenses with
general character made to assure the bank operation, respectively the expenses
with the staff and other administration expenses;
Current activity result, reflects the profile or loss resulted
from the development of current activity, determined as a difference between
revenues from current activity and current expenses.
Extra revenues, represent banking revenues with special
character registered along the development of activity of subsidies nature for
extraordinary events and other ones assimilated.
Special expenses, include the expenses resulted from events or
extra transactions (taking over of assets, earthquakes or other acts of God).
Result of special activity, determined as a difference between
the extra revenues and special expenses.
Total incomes, represent total revenues from the development
of activity, determined by means of
totalizing current and those special revenues.
Total expenses, represent total expenses made in order to
ensure the development of activity, determined as an amount of current expenses
and of those extra.
Raw profit, reflects the
profile or loss resulted from the development of activity, determined as a
difference between total revenues and total expenses, being registered a profit
when total revenues are bigger than total expenses and a loss when total
expenses are bigger than total revenues from the development of banking
activity.
Tax on profit, represent the legal tax calculate on the profit
obtained, which is owed to the budget of state.
Net result of financial exercise, represented by profit or
loss, determined as a difference between raw profit/ raw loss and the taxo n
profit ans other taxes according to legal regulations.
Bibliography:
1. Troacă
V., Contabilitate bancară, Editura „Universitaria” Craiova, 2008.
2. *
* * Accountancy regulations in accordance with European directives applicable
to credit institutions approved by Order no.5/22.12.2005 of the governor of the
National Bank of Romania, modified and completed by Order of the National Bank
of Romania no.24/21.12.
[1]
Accountancy regulations in accordance with European directives applicable to
credit institutions approved by Order no.5/22.12.2005 of the governor of the
National Bank of Romania, modified and completed by Order of the National Bank
of Romania no.24/21.12.2006.
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