Key Difference – Bank Balance Sheet vs Company Balance Sheet
The nature, risks and rewards of banks are significantly different to that of manufacturing and service-related organisations. Banks operate as an intermediary, accepting deposits from savers and lending funds to borrowers. Their profits are derived from the spread between the rate they pay for funds and the rate they receive from borrowers. A commercial organisation makes profit mainly through the selling of a product or service. Irrespective of the nature of the organisation, a balance sheet is an important tool to analyses performance, solvency and liquidity of a company. The key difference of bank balance sheet and company balance sheet is that line items in a bank balance sheet show an average balance whereas line items in a company balance sheet show the ending balance.
CONTENTS
1. Overview and Key Difference
2. What is a Bank Balance Sheet
3. What is a Company Balance Sheet
4. Side by Side Comparison – Bank Balance Sheet vs Company Balance Sheet
What is a Bank Balance Sheet?
The balances in the bank balance sheet are average amounts and these provide a better analytical framework to help understand a bank’s financial performance. The preparation of bank balance sheet should be done in line with Banking Regulations Act, 1949. The basic accounting concept where the” summation of assets should be equal to liabilities and equity” is used in the banking industry as well, as companies; however, the components in a bank balance sheet are significantly different to the one in a company balance sheet. Banks generally take higher risks compared to companies and the below should be considered.
Loans
Banks give out various types of loans including personal and mortgage loans where the default risk (loan bearer not honouring the loan repayments) may be high. Banks make an allowance to cover losses from loans and do this by changing the composition of loans provided depending on the economic conditions in the market.
Cash and Securities
Cash and short-term investments are used to lower total asset duration and exposure to loan default risk while increasing liquidity.
Format of Bank Balance Sheet
Figure_1: Sample Bank Balance Sheet
Schedules in a Bank Balance Sheet
These indicate additional information as to how the balances are calculated. Some of the main schedule in a bank balance sheet are,
- Capital
- Reserves and Surpluses
- Deposits
- Borrowings
- Other liabilities and provisions
- Cash on hand and Balance with Reserve Bank
- Investments
What is a Company Balance Sheet
A balance sheet of a commercial organisation is prepared in line with the guidelines of the International Accounting Standards Board (IASB). The underlying concept of the company balance sheet is largely similar to the bank balance sheet. Company balance sheet is one of the principal statements inspected by the banks when applying for credit.
Notes in Company Balance Sheet
Specific information on certain transactions and the detailed calculations of ending balances and any additional information should be included as notes at the end of the balance sheet. These notes can include any information that will be useful for users of the statement. Common information in notes are, items not included in the balance sheet, supplementary information and summary of significant accounting policies.
Format of Company Balance Sheet
Figure_2: Sample Company Balance Sheet
What is the difference between Bank Balance Sheet and Company Balance Sheet?
Bank Balance Sheet and Company Balance Sheet |
|
| Bank balance sheets are used by banks. | Company balance sheets are used by commerical organizations. |
| Balances | |
| Line items in a bank balance show an average balance. | Line items show the ending balance. |
| Preparation | |
| Schedules are made to the Bank Balance Sheet. | Notes are made to the Company Balance Sheet. |
| Regulation | |
| These are regulated by Banking Regulations Act, 1949. | These are regulated by International Accounting Standards Board (IASB). |
References
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