Bank Balance Sheet vs Company Balance Sheet – Before we go into the nitty-gritty of the balance sheet of the bank and of any regular company, first, we need to look into the nature of each.
Bank acts as an intermediary between two parties. The job of a bank is to assist the company which it can help. Bank makes profits from the spread between the rate it receives and the rate it pays.
On the other hand, a company operates to produce goods or services and ultimately sell these goods or services to another business, end customer or to Government. The objective of running a regular company is to generate and maximise wealth for its shareholders.
As the nature of both of these entities is different, it makes sense to prepare unique balance sheet for each of them.
- Bank Balance Sheet vs Company Balance Sheet [Infographics]
- Structure of Bank’s Balance Sheet
- Structure of Company’s Balance Sheet
- Key differences – Bank Balance Sheet vs Company Balance Sheet
- Bank Balance Sheet vs Company Balance Sheet [Comparison Table]
- Conclusion – Bank Balance Sheet vs Company Balance Sheet
Bank Balance Sheet vs Company Balance Sheet [Infographics]
The differences between Bank Balance Sheet vs Company Balance Sheet are as follows –
Structure of Bank’s Balance Sheet
Bank Balance Sheet is prepared differently from Company Balance Sheet. The first few items on the Balance Sheet of a Bank are similar to the Balance Sheet of a Regular Company. For example, cash, securities etc. come under assets in the Bank’s Balance Sheet.
Schedules in a Bank Balance Sheet
In a Bank Balance Sheet, schedules are mentioned because schedules refer to additional information. Key schedules that are being used in the bank balance sheets are –
- Reserves & Surpluses
- Cash on hand
One of the unique characteristics of the bank balance sheet is that all the balances that take place into the balance sheet are average amounts. Taking average amounts provide a better idea about the financial affairs of the bank.
However, what separates the bank from the other regular company is that the bank takes more risk than any regular companies.
This is one of the ways banks earn money. Banks provide loans to various customer segments. Two of the basic loans bank offers are personal loans and mortgage loans. Personal loans are given with an interest rate and without any mortgage. Usually, the interest rate remains higher in personal loans.
Mortgage loans are given against a mortgage. As the loans are offered against a mortgage the interest rate is usually lower here. But if the individual is unable to pay off the loans, the mortgage is claimed by the bank.
Banks also create an allowance in the balance sheet to cover losses from the loans (if any) and change the structure of this allowance depending on the economic factors going on in the market.
Short term investments
To the banks, short term investments are also of utter importance. That’s they include cash, securities under short term investments. These short term investments do three things –
- First, short term investments lower the duration of total assets.
- Second, short term investments also lower the chances of loan default risk.
- And lastly, short term investments also increase the liquidity.
Format and example of Balance Sheet of Bank
ABC Bank Balance Sheet
|Particulars||Schedule||Amount (in US $, millions)|
|Federal funds sold & securities purchased||11,000|
|Allowance for loan & leases losses||4||7,000|
|Money Market Deposits||26,000|
|Federal funds sold and purchased under agreement to repurchase||5,500|
|Interest bearing long term debt||3||13,000|
|Non-interest bearing liabilities||2||3,500|
|Total liabilities & shareholders’ equity||162,000|
Structure of Company’s Balance Sheet
Balance sheet of a regular company is similar to a simple balance sheet format.
The balance sheet of a regular company will balance two sides – assets and liabilities.
For example, if a company takes a loan from a bank of $50,000, the transaction will take place on the balance sheet in the following manner –
- Firstly, on the “asset” side, we will include “Cash” of $50,000.
- Secondly, on the “liability” side, we will include “Debt” of $50,000.
For one transaction there are two consequences and these two are balanced by the balance sheet.
Let’s now understand “assets” and “liabilities”.
Under “assets”, first we will talk about “current assets”. Current assets are assets which can be liquidated quickly in cash. Here are the items that come under current assets –
- Cash & Cash Equivalents
- Short-term investments
- Trade & Other Receivables
- Prepayments & Accrued Income
- Derivative Assets
- Current Income Tax Assets
- Assets Held for Sale
- Foreign Currency
- Prepaid Expenses
Here’s an example for you –
|A (in US $)||B (in US $)|
|Total Current Assets||26,000||24,000|
Now, let’s talk about “non-current assets”.
Non-current assets are also called fixed assets. They will pay you off for more than one year and they can’t easily be liquidated.
Under “non-current assets”, we would include the following items –
- Property, plant and equipment
- Intangible assets
- Investments in associates & joint ventures
- Financial assets
- Employee benefits assets
- Deferred tax assets
If we add both current assets and non-current assets, we will get total assets of a regular company.
In Liabilities also, we will start with “current liabilities”.
Current liabilities are liabilities that can be paid in a very short duration. Here are the items that we would include under current liabilities –
- Financial Debt (Short term)
- Trade & Other Payables
- Accruals & Deferred Income
- Current Income Tax Liabilities
- Derivative Liabilities
- Accounts Payable
- Sales Taxes Payable
- Interests Payable
- Short Term Loan
- Current maturities of long term debt
- Customer deposits in advance
- Liabilities directly associated with assets held for sale
Now we will look at an example of current liabilities –
|M (in US $)||N (in US $)|
|Current Taxes Payable||17000||11400|
|Current Long-term Liabilities||8000||12000|
|Total Current Liabilities||46000||55000|
We will now have a look at the “non-current liabilities”. These liabilities are long term liabilities which the company will pay off within a long period of time.
In “non-current liabilities”, we will include the following –
- Financial Debt (Long term)
- Employee Benefits Liabilities
- Deferred Tax Liabilities
- Other Payables
By adding the “current liabilities” and “non-current liabilities”, we will get “total liabilities”.
To complete the balance sheet of a regular company, we have only one thing is left. And that is “shareholders’ equity”.
Shareholders’ equity is the statement which includes that share capital and all other related adjustments. Here’s a format of shareholders’ equity –
|Additional Paid-up Capital:|
|(-) Treasury Shares||(**)|
|(-) Translation Reserve||(**)|
If we add total liabilities and shareholders’ equity, we will get a number and that should match with the total assets.
Now we will look at the format and example of the balance sheet of a regular company.
Format & example of the balance sheet of a regular company
Balance Sheet of ABC Company
|2016 (In US $)||2015 (In US $)|
|Plant & Machinery||22,00,000||15,60,000|
|Long term Liabilities||85,000||175,000|
|Total Stockholders’ Equity||58,25,000||57,00,000|
|Total liabilities & Stockholders’ Equity||60,85,000||60,85,000|
Key differences – Bank Balance Sheet vs Company Balance Sheet
The differences between Bank Balance Sheet vs Company Balance Sheet are as follows –
- Balance Sheet of Bank is quite different than Balance Sheet of a Regular Company in the approach of preparation. Both are prepared quite differently.
- Assets and liabilities of a bank are much different than the assets and liabilities of a regular company. That’s why even if the arrangement of the bank and a regular company is similar, the items are always different.
- In balance sheet of the banks, the average balances are summed up and recorded. It gives better framework of financial performance of the banks. On the other hand, balance sheet of a regular company takes the ending balance from trail balance. Trial balance is prepared from the ledger accounts. And then from trail balance, the ending balance is transferred to the balance sheet of a regular company.
- To show new information, balance of bank used “schedules”. To show new information, on the other hand, balance sheet of a regular company uses “notes”.
- To prepare balance sheet of a bank, an accountant has to go through lot of information. S/he needs to look through the short term investments of the banks, the loans (personal & mortgage), deposits, interest paid & received etc. That’s why preparing the balance sheet of a bank is quite cumbersome. On the other hand, preparing the balance sheet of a regular company is pretty easy. All you need to do is to find out current assets, fixed assets, current liabilities, non-current liabilities, and shareholders’ equity. And you would be able to prepare the balance sheet easily.
- Banks take more risks than any other companies. That’s why in the balance sheet of the bank, a separate provision (allowance) is created to cover the losses on loans. There’re provisions for bad debts or creditors in the balance sheet of a regular company, but they are not similar to allowance created in the bank’s balance sheet.
- There are many economic factors affect the balance sheet of a bank. But in the case of a regular company, rarely external events affect the preparation of the balance sheet.
Also, check out Balance Sheet vs Consolidated Balance Sheet
Bank Balance Sheet vs Company Balance Sheet [Comparison Table]
|Basis for Comparison – Bank Balance Sheet vs Company Balance Sheet||Balance Sheet of Bank||Balance Sheet of a Regular Company|
|1. Definition||Bank’s balance sheet is prepared as per the mandate by the Regulatory Authorities||Company’s balance sheet is prepared as per the regulation of International Accounting Standards Board (IASB).|
|2. Objective||The main objective is to showcase an accurate trade-off between bank’s profit and risk.||The main objective is to reflect the accurate financial picture of an organization to the stakeholders.|
|3. Scope||The scope of bank’s balance sheet is limited since it’s applicable only for banks.||The scope of company balance sheet is much broader since it is applicable for all sorts of companies (manufacturing, auto etc.).|
|4. Equation – Bank Balance Sheet vs Company Balance Sheet||Assets = Liabilities + Shareholders’ Equity
(*Bank’s assets & liabilities are much different than any regular company)
|Assets = Liabilities + Shareholders’ Equity|
|5. Complexity||Preparation of balance sheet for a bank is quite complex since bank needs to calculate the “net loans”.||Preparation of company balance sheet is much simpler.|
|6. Time consumption||Bank’s balance sheet needs a lot of time to prepare.||Company’s balance sheet doesn’t take a lot of time to prepare.|
|7. Key concepts – Bank Balance Sheet vs Company Balance Sheet||Loans, Short-term investments, Allowance for losses on loans.||Assets, Liabilities, & Shareholders’ Equity.|
|8. Mentionable document||Bank balance sheet mentions reference through “schedules”.||Company balance sheet mentions its reference via “notes”.|
|9. Type of balance||In bank balance sheet, the type of balance is average balance.||In the company balance sheet, the type of balance is ending balance.|
Conclusion – Bank Balance Sheet vs Company Balance Sheet
If you look at a balance sheet of a regular company, you will have a surface level idea about how a balance sheet works. The balance sheet of the bank is arranged in a similar manner, but the items under the heads are different.
Moreover, banks use the average balance for their balance sheets which is quite unique if we compare it with the regular company operations.
Even if these balance sheets are quite different in scope, the objective of both of them is quite similar, i.e. to disclose an accurate picture of the financial affairs of the organization.