FINANCIAL STATEMENTS AT A BANK
Financial statements at a bank are the same in the form and method of preparing as at any other business or organization, but they differ a little.
The Balance Sheet of a bank gives us a view of its financial situation at one point of time, usually at any day of a particular year. But we do not know what has happened between two balance sheets. This information is provided by the Income Statement (Profit and Loss Account) for the period in question. Neither statement is exactly uniform from bank to bank, but both contain certain essential features.
The largest asset of a bank is normally its total portfolio of loans. Deposits usually constitute the largest liability. Balance sheets usually include the following items listed as assets:
1. Cash on hand and due from banks – money in vaults, balances with other banks, checks in process of collection;
2. Investments – bonds, shares, etc;
3. Loans – to companies, the general public, etc;
4. Fixed assets – buildings, equipment, etc.
Items listed in the balance sheet as liabilities are:
1. Deposits – all money owed to depositors;
2. Taxes payable – national and local;
3. Dividends payable – decided on, but not yet paid.
The Income Statement records the income of a bank: interest on loans, return on investments, fees, commissions, service charges. The granting of credit provides the largest source of bank income. Typically, two thirds of a bank's yearly earnings result from interest on loans. Nine out of every ten money units they lend come from depositors' funds.
The following items normally constitute the main expenses in a bank's Income Statement: interest paid; salaries and other benefits; taxes.
A bank's accounting systems are designed to record and present many transactions that take place every day. Substantial reserves over and above statutory requirements are an indication to customers of the bank's strength, that it has run its business well and has retained profits in the business for future operations.
Vocabulary:
differ – відрізнятися
to happen – траплятися
neither – жоден
portfolio – пакет (цінних паперів)
money in vaults – гроші у вигляді готівки
to owe – заборгувати
to grant a credit – надати кредит
to run a business – вести справи, керувати бізнесом
Questions:
1. What does the Balance Sheet of a bank give us?
2. What is the largest asset of a bank?
3. What items listed as assets does the balance sheets usually include?
4. What does the income statement record?
5. What items normally constitute the main expenses in a bank's income statement?
6. What is the indication of the bank’s strength?
BUDGET SYSTEM
A budget is a detailed plan outlining the obtaining and use of financial and other resources over some given time period. A budget sets forth management's expectations for revenues and, based on those financial expectations, allocates the use of specific resources throughout the firm. It represents a plan for the future expressed in formal quantitative terms. The State Budget is a plan of obtaining and use of financial resources to provide with the functions which are carried out by the state authorities of Ukraine. The act of preparing a budget is called budgeting. The use of budgets to control activities of any organization, village, city or town, as well as a country is known as budgetary control.
The budget system of Ukraine consists of the State Budget of Ukraine, Republican Budget of Crimea, and local budgets. The totality of all budgets is called the master budget (consolidated budget) of Ukraine. The master budget of Ukraine is used to analyze and denote the principles of the state legislation of economic and social development of Ukraine. The master budget is a summary of all phases of the country's plans and goals for the future. It sets specific targets for sales, production, distribution, and financing activities.
Most firms prepare yearly budgets from short-term and long-term financial forecasts. There are usually several budgets established in a firm: an operating budget, a capital budget, a cash budget, a master budget.
An operating budget is the projection of money allocation to various costs and expenses needed to run or operate the business. How much the firm will spend on supplies, travel, rent, advertising, salaries, etc. is determined in this budget.
A capital budget consists of the firm's spending plans: the purchase of such assets as property, buildings, and equipment.
A cash budget is the projected cash balance at the end of a given period (e.g. monthly, quarterly). It is important for managers in borrowing, debt repayment, cash disbursements, and short-term investment expectations.
A master (consolidated) budget ties in all the above mentioned budgets and summarizes the proposed financial activities of the firm.
The budget system (the order) is based on the principles of unity, completeness, authentic information, transparency (visualization) and independence of all budgets involved into the budget system of Ukraine.
The principle of unity means the existence of the single system of computation of revenues and expenses by every chain of the budget system. It is backed by the single legislation base, single set and form of documentation, single monetary system, socio-economic policy and necessary statistic and budget information.
Vocabulary:
expectation – очікування
to allocate resources – розподіляти ресурси
local – місцевий
master budget (consolidated budget) – основний, генеральний бюджет
state legislation – державне законодавство
target – мета
goal – ціль, мета
forecast – прогноз
operating budget – кошторис поточних витрат, поточний бюджет
capital budget – кошторис капіталовкладень
cash budget – готівковий бюджет
debt repayment – виплата боргів
cash disbursements – використання коштів
to tie sth in – пов’язувати щось
monetary system – грошова система
Questions:
1. What is budget? What does it outline?
2. What does the budget system of Ukraine consist of?
3. What types of budget are usually established in a firm?
4. What is an operating budget (a capital budget, a cash budget, a master budget)?
5. What is the budget system based on?
6. What is the budget system backed by?