Financial Accounting and Reporting
Core concepts
Bank financial statements are prepared on the accrual basis under the going concern, consistency and prudence conventions. Every transaction has two effects; the trial balance proves arithmetic equality only, never correctness. Year-end adjusting entries - accruals, prepayments, depreciation, provisions - convert cash records into accrual profit.
Separate capital expenditure (creates or enhances an asset) from revenue expenditure (consumed within the period). Separate a provision (a present obligation of uncertain amount, charged to profit and loss) from a reserve (an appropriation of profit) and from a contingent liability (a possible obligation, disclosed but not recognised).
In bank reporting, interest on a non-performing asset is not recognised as income until received; the entry is credited to an interest suspense account, keeping doubtful income off the profit and loss account. NPAs are classified substandard, doubtful and loss, with provisioning rising along that ladder; standard assets also carry a small general provision.
Traps
Examiners test whether a revision of an asset's useful life is a change in accounting estimate (applied prospectively, no restatement) rather than a change in policy. Watch for doubled or mirrored entries - a trial balance still balances when both sides carry the same error. Do not treat CRR and SLR balances as expenses; they are assets.
Worked example
A machine costs ₹5,00,000 with residual value ₹50,000 and a five-year life. Straight-line depreciation = (5,00,000 − 50,000) ÷ 5 = ₹90,000 a year. On the reducing-balance method at 20%, year one is ₹1,00,000 and year two ₹80,000 - the charge falls over time, front-loading expense and depressing early profit.