Bank Accounting and Book-keeping
This domain tests double entry as applied inside a bank, the final accounts of a bank, and asset classification.
Double entry in a bank's own books
Every transaction has two effects. Golden rules: personal accounts - debit the receiver, credit the giver; real accounts - debit what comes in, credit what goes out; nominal accounts - debit expenses and losses, credit incomes and gains.
Bank-specific points
- A customer's deposit is a liability of the bank (credit balance); an overdraft is an asset (debit balance).
- Books end in a trial balance, then the Profit and Loss Account and Balance Sheet in the Third Schedule format of the Banking Regulation Act, 1949.
- Banks must transfer 20% of profits to the statutory reserve before declaring a dividend.
- NPA classification passes through SMA-0 (1–30 days overdue), SMA-1 (31–60) and SMA-2 (61–90); after 90 days the advance is substandard, then doubtful, then loss.
- A Bank Reconciliation Statement explains differences between the cash book and the pass sheet.
Worked example
A customer deposits ₹15,000 cash. In the bank's books: debit Cash (asset rises), credit Customer Deposit (liability rises). In the customer's own cash book the same event is debit Bank, credit Cash. Reasoning: from the bank's side the bank receives cash and gives a promise to repay, so the personal rule applies - debit the receiver, credit the giver.
Traps that cost marks
Reversing entries because the customer's view is copied; treating a deposit as income; ignoring the statutory reserve; labelling an overdue loan an NPA before 90 days; mixing capital with revenue expenditure.