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In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity.
Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below. Transactions on deposit accounts are recorded in a bank's books, and the resulting balance is recorded as a liability of the bank and represents an amount owed by the bank to the customer. In other words, the banker-customer ...
To ensure the reliability of the financial records, reconciliations must, therefore, be performed for all balance sheet accounts on a regular and ongoing basis. A robust reconciliation process improves the accuracy of the financial reporting function and allows the finance department to publish financial reports with confidence.
The depositor acquires a claim against the bank for the sum deposited but not to the actual cash handed over to the bank. In accounting terms, the bank creates ("opens") an account in the name of the depositor or a name directed by the depositor in which the amount received is recorded as a transaction .
It sometimes refers more specifically to the practice of managing financial risks that arise due to mismatches - "duration gaps" - between the assets and liabilities, on the firm's balance sheet or as part of an investment strategy. ALM sits between risk management and strategic planning.
Since the balance sheet is founded on the principles of the accounting equation, this equation can also be said to be responsible for estimating the net worth of an entire company. The fundamental components of the accounting equation include the calculation of both company holdings and company debts; thus, it allows owners to gauge the total ...
Contemporary bank management methods for liquidity are based on maturity analysis of all the bank's assets and liabilities (off balance sheet exposures may also be included). Assets and liabilities are put into residual contractual maturity buckets such as 'on demand', 'less than 1 month', '2–3 months' etc.
[36] [37] [note 5] The major argument offered by dissident analysis is that any bank balance-sheet expansion (e.g. through a new loan) that leaves the bank short of the required reserves may affect the return it can expect on the loan, because of the extra cost the bank will undertake to return within the ratios limits – but this does not and ...