Operational Aspects of Accounting Entries | PAPER III – ACCOUNTING & FINANCIAL MANAGEMENT FOR BANKERS | MODULE A: ACCOUNTING PRINCIPLES AND PROCESSES
Operational Aspects of Accounting Entries in Banks
Description
This topic covers the unique characteristics of accounting systems used in banks, the differences in accounting practices across banks, and provides illustrative examples for better understanding.
Peculiar Features of Accounting System in Banks
- Banking accounting follows the double-entry system but is customized to handle large volumes and specific types of transactions.
- Use of Core Banking Solutions (CBS) automates most of the accounting entries.
- Day Book and General Ledger are maintained electronically.
- Simultaneous debit and credit entries are generated for every transaction.
- Transactions are categorized by GL Heads and Sub-heads.
Accounting Systems of Different Banks
- Most banks follow similar CBS-driven accounting, but nomenclature and software platforms may differ.
- RBI and Bank-specific guidelines influence chart of accounts and reporting structures.
- Different banks may use software like Finacle, Flexcube, or BaNCS.
- Control mechanisms, like maker-checker and real-time reconciliation, ensure accuracy.
Illustration
Example: A customer deposits ₹10,000 cash in their Savings Account.
Entry:
Cash A/c (Branch) Dr. ₹10,000
To Customer's Savings A/c ₹10,000
This reflects an increase in the bank's cash and a corresponding liability to the customer.
MCQs (with Answers)
- Which system is predominantly used in banks for accounting?
a) Manual System
b) CBS
c) Single-entry System
d) Excel Sheets
Answer: b) CBS - What does CBS stand for?
a) Central Banking Scheme
b) Core Banking Solution
c) Common Banking Software
d) Central Book System
Answer: b) Core Banking Solution - In bank accounting, what is the nature of a customer’s savings account from the bank’s perspective?
a) Asset
b) Expense
c) Liability
d) Revenue
Answer: c) Liability - Which entry is made when a loan is disbursed to a customer?
a) Loan A/c Dr., To Cash A/c
b) Customer A/c Dr., To Loan A/c
c) Loan A/c Dr., To Customer A/c
d) Cash A/c Dr., To Loan A/c
Answer: c) Loan A/c Dr., To Customer A/c - Which ledger records all the accounting heads?
a) Day Book
b) Customer Ledger
c) General Ledger
d) Trial Balance
Answer: c) General Ledger - Which of the following is NOT a banking accounting software?
a) Finacle
b) Tally
c) Flexcube
d) BaNCS
Answer: b) Tally - Who provides guidelines on accounting standards in Indian banks?
a) SEBI
b) IRDAI
c) RBI
d) Ministry of Finance
Answer: c) RBI - What does the term “Maker-Checker” relate to in bank accounting?
a) Cheque Verification
b) Authorization Control
c) Passbook Entry
d) Manual Posting
Answer: b) Authorization Control - What is the purpose of sub-heads in bank accounting?
a) To increase profit
b) For customer identification
c) For detailed classification
d) None of the above
Answer: c) For detailed classification - Which type of account is “Cash A/c” in bank books?
a) Asset
b) Liability
c) Expense
d) Income
Answer: a) Asset
Operational Aspects of Accounting Entries in Banks with mathematical example
Description
This topic covers the unique characteristics of accounting systems used in banks, the differences in accounting practices across banks, and provides illustrative examples for better understanding.
Peculiar Features of Accounting System in Banks
- Banking accounting follows the double-entry system but is customized to handle large volumes and specific types of transactions.
- Use of Core Banking Solutions (CBS) automates most of the accounting entries.
- Day Book and General Ledger are maintained electronically.
- Simultaneous debit and credit entries are generated for every transaction.
- Transactions are categorized by GL Heads and Sub-heads.
Accounting Systems of Different Banks
- Most banks follow similar CBS-driven accounting, but nomenclature and software platforms may differ.
- RBI and Bank-specific guidelines influence chart of accounts and reporting structures.
- Different banks may use software like Finacle, Flexcube, or BaNCS.
- Control mechanisms, like maker-checker and real-time reconciliation, ensure accuracy.
Illustration
Example 1: Single Entry – A customer deposits ₹10,000 in their Savings Account.
Cash A/c (Branch) Dr. ₹10,000
To Customer's Savings A/c ₹10,000
This reflects an increase in the bank's cash and a corresponding liability to the customer.
Example 2: Mathematical Posting Summary – A branch handles the following transactions in a day:
- Cash Deposit by 3 customers: ₹5,000, ₹10,000, ₹15,000
- Loan disbursed: ₹20,000
Accounting Entries:
Cash A/c Dr. ₹30,000
To Savings A/c (Cust. A) ₹5,000
To Savings A/c (Cust. B) ₹10,000
To Savings A/c (Cust. C) ₹15,000
Loan A/c Dr. ₹20,000
To Customer Loan A/c ₹20,000
Balance Impact:
- Total Debit: ₹50,000 (₹30,000 + ₹20,000)
- Total Credit: ₹50,000 (Sum of all credit entries)
This confirms the double-entry principle: Total Debit = Total Credit.
MCQs (with Answers)
- Which system is predominantly used in banks for accounting?
a) Manual System
b) CBS
c) Single-entry System
d) Excel Sheets
Answer: b) CBS - What does CBS stand for?
a) Central Banking Scheme
b) Core Banking Solution
c) Common Banking Software
d) Central Book System
Answer: b) Core Banking Solution - In bank accounting, what is the nature of a customer’s savings account from the bank’s perspective?
a) Asset
b) Expense
c) Liability
d) Revenue
Answer: c) Liability - Which entry is made when a loan is disbursed to a customer?
a) Loan A/c Dr., To Cash A/c
b) Customer A/c Dr., To Loan A/c
c) Loan A/c Dr., To Customer A/c
d) Cash A/c Dr., To Loan A/c
Answer: c) Loan A/c Dr., To Customer A/c - Which ledger records all the accounting heads?
a) Day Book
b) Customer Ledger
c) General Ledger
d) Trial Balance
Answer: c) General Ledger - Which of the following is NOT a banking accounting software?
a) Finacle
b) Tally
c) Flexcube
d) BaNCS
Answer: b) Tally - Who provides guidelines on accounting standards in Indian banks?
a) SEBI
b) IRDAI
c) RBI
d) Ministry of Finance
Answer: c) RBI - What does the term “Maker-Checker” relate to in bank accounting?
a) Cheque Verification
b) Authorization Control
c) Passbook Entry
d) Manual Posting
Answer: b) Authorization Control - What is the purpose of sub-heads in bank accounting?
a) To increase profit
b) For customer identification
c) For detailed classification
d) None of the above
Answer: c) For detailed classification - Which type of account is “Cash A/c” in bank books?
a) Asset
b) Liability
c) Expense
d) Income
Answer: a) Asset
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