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 loans, 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 wealth 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 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 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 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)
Assets
Cash balances	8	30,000
Residential mortgage		25,000
Federal funds sold & securities purchased		11,000
Commercial		23,000
Investments	7	43,000
Credit Card		3500
Advances	6	12,500
Commercial Loans		2,000
Leases		4,500
Accumulated Depreciation	5	500
Allowance for loan & leases losses	4	7,000
Total Assets		162,000
Liabilities
Savings		45,000
Time Deposits		34,000
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
Shareholders’ Equity	1	35,000
Total liabilities & shareholders’ equity		162,000

Structure of 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 which can be liquidated quickly in cash. Here are the items that come under current assets –

• Cash & Cash Equivalents
• Short-term investments
• Inventories
• 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 $)
Cash	4500	5600
Cash Equivalent	6500	3400
Accounts Receivable	7000	8000
Inventories	8000	7000
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
• Goodwill
• 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 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 –

• Financial Debt (Short term)
• Trade & Other Payables
• Provisions
• 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 $)
Accounts Payable	21000	31600
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)
• Provisions
• 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

Shareholders’ equity is the statement which includes that share capital 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 Earnings	***
(-) 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 $)
Assets
Current Assets	250,000	550,000
Investments	36,00,000	39,50,000
Plant & Machinery	22,00,000	15,60,000
Intangible Assets	35,000	25,000
Total Assets	60,85,000	60,85,000
Liabilities
Current Liabilities	175,000	210,000
Long term Liabilities	85,000	175,000
Total Liabilities	260,000	385,000

 

Stockholders’ Equity
Preferred Stock	450,000	450,000
Common Stock	49,95,000	50,00,000
Retained Earnings	380,000	250,000
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 the 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 the balance sheet of the banks, the average balances are summed up and recorded. It gives a better framework for the financial performance of the banks. On the other hand, the 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, the balance of the bank used “schedules”. To show new information, on the other hand, a balance sheet of a regular company uses “notes”.
• To prepare a balance sheet of a bank, an accountant has to go through a 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 company. 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	The 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.    Scope	The 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.    Complexity	The 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 consumption	Bank’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, Allowance for losses on loans.	Assets, Liabilities, & Shareholders’ Equity.
8.    Mentionable document	Bank balance sheet mentions reference through “schedules”.	The company balance sheet mentions its reference via “notes”.
9.    Type of balance	In the 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.

Bank Balance Sheet vs Company Balance Sheet Video

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