Basic Accounting and Book-keeping in Banking
Double-entry basics
This domain tests book-keeping from a bank's perspective. Every transaction has two effects: debit and credit. The accounting equation is Assets = Liabilities + Capital. Golden rules: debit what comes in, credit what goes out (real accounts); debit the receiver, credit the giver (personal accounts); debit expenses and losses, credit incomes and gains (nominal accounts). Banks maintain a cash book, ledgers, and a balance sheet. Customer deposits are liabilities for the bank; loans and advances are assets.
Bank records
A bank's day book records transactions; the general ledger summarises accounts; the trial balance checks arithmetic; the balance sheet shows financial position. Profit and loss accounts capture interest income, fee income, and expenses. Reconciliation of interbank and nostro accounts is routine. Accounting errors may be errors of omission, commission, principle, or compensating errors.
Worked example
A customer deposits ₹10,000 cash. Reasoning: from the bank's side, cash (asset) increases, so debit cash; the customer's deposit (liability) increases, so credit the customer account. Entry: debit cash ₹10,000; credit customer deposit ₹10,000. If the same customer withdraws cash, the entry reverses. This shows why the customer's credit balance is the bank's liability.
Traps
Do not use the customer's perspective when answering bank accounting questions. Do not say a deposit is bank income. Do not treat a loan as a liability of the bank. Do not confuse trial balance with final accounts.