Bank Balance Sheet vs Company Balance Sheet

Difference Between Bank Balance Sheet and Company Balance Sheet

The preparation of a bank balance sheet is really complicated since the banking institutions will need to calculate their net loans and it is really time consuming and the items recorded in this balance sheet are loans, allowances, Short Term LoanShort Term LoanShort term loans are the loans with a repayment period of 12 months or less, generally offered by firms, individuals or entrepreneurs for immediate liquidity requirements. These are usually provided at a higher interest rate, these short term loans often have a weekly repayment schedule.read mores, etc whereas the preparation of a company’s balance sheet is not that complicated and time-taking and it records items like assets, liabilities and net worth.

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.

The bank acts as an intermediary between two parties. The job of a bank is to assist the company in 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 maximize wealthMaximize WealthWealth maximization means the maximization of the shareholder’s wealth as a result of an increase in share price thereby increasing the market capitalization of the company. The share price increase is a direct function of how competitive the company is, its positioning, growth strategy, and how it generates profits.read more for its shareholders.

As the nature of both of these entities is different, it makes sense to prepare a unique balance sheet for each of them.

Bank-Balance-Sheet-and-Company-Balance-Sheet

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Bank Balance Sheet vs. Company Balance Sheet [Infographics]

The differences between Bank Balance Sheet vs. Company Balance Sheet are as follows –

Bank-Balance-Sheet-vs-Company-Balance-Sheet

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Structure of Bank’s Balance Sheet

Bank Balance SheetBalance SheetThe main purpose of the Balance sheet is to give the understanding to its users about the financial position of the business at the particular point of time by showing the details of the assets of the company along with its liabilities and owner’s capital.read more is prepared differently from the 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 –

  • Deposits
  • Borrowings
  • Capital
  • Reserves & Surpluses
  • Cash on hand
  • Investments
  • Liabilities

Average balance

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 company.

Loans

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 factorsEconomic FactorsEconomic factors are external, environmental factors that influence business performance, such as interest rates, inflation, unemployment, and economic growth, among others.read more 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 –

Format and example of Balance Sheet of Bank

ABC Bank Balance Sheet

ParticularsScheduleAmount (in US $, millions)
Assets
Cash balances830,000
Residential mortgage25,000
Federal funds sold & securities purchased11,000
Commercial23,000
Investments743,000
Credit Card3500
Advances612,500
Commercial Loans2,000
Leases4,500
Accumulated DepreciationAccumulated DepreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset's purchase price and its carrying value on the balance sheet.read more5500
Allowance for loan & leasesLeasesLeasing is an arrangement in which the asset's right is transferred to another person without transferring the ownership. In simple terms, it means giving the asset on hire or rent. The person who gives the asset is “Lessor,” the person who takes the asset on rent is “Lessee.”read more losses47,000
Total Assets 162,000
Liabilities
Savings45,000
Time Deposits34,000
Money Market Deposits26,000
Federal funds sold and purchased under agreement to repurchaseAgreement To RepurchaseA repurchase agreement or repo is a short-term borrowing for individuals who deal in government securities. Such an agreement can happen between multiple parties into three types- specialized delivery, held-in-custody repo and third-party repo.read more5,500
Interest bearing long term debtTerm DebtLong-term debt is the debt taken by the company that gets due or is payable after one year on the date of the balance sheet. It is recorded on the liabilities side of the company's balance sheet as the non-current liability.read more313,000
Non-interest bearing liabilities23,500
Shareholders’ Equity135,000
Total liabilities & shareholders’ equity  162,000

Structure of the Company’s Balance Sheet

The 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.”

Assets

Under “assets,” first, we will talk about “current assets.” Current assets are assets that can be liquidated quickly in cash. Here are the items that come under current assets –

Here’s an example for you –

 A (in US $)B (in US $)
Cash 45005600
Cash Equivalent65003400
Accounts Receivable70008000
Inventories80007000
Total Current Assets26,00024,000

Now, let’s talk about “non-current assets.”

Non-current assetsNon-current AssetsNon-current assets are long-term assets bought to use in the business, and their benefits are likely to accrue for many years. These Assets reveal information about the company's investing activities and can be tangible or intangible. Examples include property, plant, equipment, land & building, bonds and stocks, patents, trademark.read more 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 –

If we add both current assets and non-current assets, we will get the total assets of a regular company.

Liabilities

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 –

Now we will look at an example of current liabilitiesExample Of Current LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc.read more

 M (in US $)N (in US $)
Accounts Payable2100031600
Current Taxes Payable1700011400
Current Long-term Liabilities800012000
Total Current Liabilities4600055000

We will now have a look at the “non-current liabilities.” These liabilities are long term liabilitiesLong Term LiabilitiesLong Term Liabilities, also known as Non-Current Liabilities, refer to a Company’s financial obligations that are due for over a year (from its operating cycle or the Balance Sheet Date). read more, which the company will pay off within a long period of time.

In “non-current liabilities,” we will include the following –

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

Shareholders’ equity EquityShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders' Equity Statement on the balance sheet details the change in the value of shareholder's equity from the beginning to the end of an accounting period.read more is the statement that includes that share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side.read more and all other related adjustments. Here’s a format of shareholders’ equity –

Shareholders’ Equity
Paid-in Capital: 
Common Stock***
Preferred Stock***
Additional Paid-up Capital: 
Common Stock**
Preferred Stock**
Retained EarningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more***
(-) 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 sheetExample Of The Balance SheetA balance sheet is a statement that shows the financial position of the organization as on any specified date. The balance sheet has two sides: the Asset side and the Liability side. The asset side shows Non-current Assets and Current Assets. The liability side shows the Owner’s Capital and Current as well as Non-Current Liability.read more 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 $)
Assets  
Current Assets250,000550,000
Investments36,00,00039,50,000
Plant & Machinery22,00,00015,60,000
Intangible Assets35,00025,000
Total Assets60,85,00060,85,000
Liabilities  
Current Liabilities175,000210,000
Long term Liabilities85,000175,000
Total Liabilities260,000385,000
Stockholders’ Equity
Preferred Stock450,000450,000
Common Stock49,95,00050,00,000
Retained Earnings380,000250,000
Total Stockholders’ Equity58,25,00057,00,000
Total liabilities & Stockholders’ Equity60,85,00060,85,000

Key differences – Bank Balance Sheet vs. Company Balance Sheet

The differences between Bank Balance Sheet vs. Company Balance Sheet are as follows –

Also, check out the Balance Sheet vs. Consolidated Balance SheetBalance Sheet Vs. Consolidated Balance SheetA balance sheet is one of the company's financial statements, which presents the company's liabilities and assets. In contrast, the consolidated balance sheet is the extension with the company's balance sheet items, including the subsidiary companies balance sheet items.read more

Bank Balance Sheet vs. Company Balance Sheet [Comparison Table]

Basis for Comparison – Bank Balance Sheet vs. Company Balance Sheet Balance Sheet of BankBalance Sheet of a Regular Company
1.    DefinitionBank’s balance sheet is prepared as per the mandate by the Regulatory AuthoritiesThe company’s balance sheet is prepared as per the regulation of the 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.    ScopeThe scope of the bank’s balance sheet is limited since it’s applicable only for banks.The scope of the company balance sheet is the much broader sense it is applicable to 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.    ComplexityThe preparation of a balance sheet for a bank is quite complex since the bank needs to calculate the “net loans.”The preparation of the company balance sheet is much simpler.
6.    Time consumptionBank’s balance sheet needs a lot of time to prepare.The 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, Provision for losses on loans;Assets, Liabilities, & Shareholders’ Equity.
8.    Mentionable documentBank balance sheet mentions reference through “schedules.”The company balance sheet mentions its reference via “notes.”
9.    Type of balanceIn the bank balance sheet, the type of balance is the 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.

Bank Balance Sheet vs. Company Balance Sheet Video

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Comments

  1. Gautam Mohan says

    As usual Ur articles are very informative Dheeraj.

    Thanks

    • Dheeraj Vaidya says

      Thanks Gautam!

  2. SHRIKANT says

    Excellent presentation and simple to understand

    • Dheeraj Vaidya says

      thanks Shrikant!