Accounting for Banking, Insurance and Other Entities
This domain tests final accounts and regulatory accounting for banks, insurers and selected other entities. It focuses on classification, provisions and the distinction between operating income and liabilities such as deposits.
Core rules
- Bank final accounts follow the Banking Regulation Act, 1949 format and RBI directions. Interest income, other income, interest expended and operating expenses are separated; provisions are charged before profit.
- Advances are classified standard, substandard, doubtful and loss. An NPA is generally an advance overdue for more than 90 days; interest on NPAs is recognised only when received, subject to rules. Provisions follow RBI percentages.
- Insurers separate premium, claims, commission and expenses. General insurance recognises premium over the policy period and maintains unexpired risk reserve; life insurance relies on actuarial valuation and policy liabilities.
- Not-for-profit entities use receipts and payments, income and expenditure, and a balance sheet; capital receipts are not income.
Worked example
A bank has interest income ₹5,00,000, other income ₹50,000, interest expense ₹3,00,000, operating expenses ₹1,00,000 and provision for NPAs ₹40,000. Profit = 5,00,000 + 50,000 - 3,00,000 - 1,00,000 - 40,000 = ₹1,10,000. The provision is charged in the revenue statement; it is not a reduction of income.
Traps
Do not treat customer deposits as income; they are liabilities. Do not recognise interest on a doubtful NPA on an accrual basis without checking the rules. Do not omit unexpired risk reserve in general insurance. Do not treat a donation for a building as income of a not-for-profit entity. Do not net provisions against advances without disclosure.