Bank Accounting Procedures

by Marquis Codjia; Updated September 26, 2017
Bank accounting procedures help a financial institution compile accurate financial statements.

A banking institution's top leadership establishes adequate accounting procedures to prevent losses in operating activities such as lending and investing transactions. These procedures also help a bank abide by U.S. generally accepted accounting principles, or GAAP, and international financial reporting standards, or IFRS, as well as Securities and Exchange Commission (SEC) regulations.

Revenue and Expense Recognition

A banking institution recognizes (records) revenues and expenses at market values, in accordance with SEC and Financial Industry Regulatory Authority (FINRA) regulations. Revenue is income that a bank earns by lending, investing and providing other services to clients. Examples of bank revenue items include loan revenues and gains on financial transactions with private business partners or on securities exchanges. A bank accountant credits a revenue account to increase its amount and debits it to reduce the account balance. An expense is a cost or loss that a bank incurs in operating activities, lending transactions or trading. Examples of expense or loss items include salaries and rent, loan defaults and losses on investment assets. A bank bookkeeper debits an expense account to increase its amount and credits it to reduce the account balance. FINRA and SEC rules require a bank to report revenue and expense items in the statement of profit and loss.

Asset and Liability Recording

A bank's senior leadership generally ensures that internal controls in corporate asset-and-liability reporting systems are adequate and functional. These controls are important, because a banking institution may face adverse regulatory actions, such as fines and litigation, if it is unable to monitor asset quality in its balance sheet. An asset is an economic resource that a bank owns or on which it can have ownership rights in the future. Examples include short-term assets, such as interest receivable and cash, and long-term assets, such as loans receivable, land, property and equipment. A bank accountant debits an asset account to increase its amount and credits it to reduce the account balance. A liability is a debt that a banking company must repay when it becomes due or honor a financial commitment on time. Examples include short-term liabilities, such as customer deposits and interest payable, and long-term liabilities, such as bonds payable. A bank bookkeeper credits a liability account to increase its amount and debits it to reduce the account balance.

Financial Reporting

U.S. GAAP and IFRS require a bank to issue accurate and complete financial statements at the end of each month or quarter. Complete accounting reports include a balance sheet, statement of profit and loss, statement of cash flows and statement of retained earnings.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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