Lesson No. 6 – GL -General Accounting entries

Dear young f b friends Late Sunday 15/5/16.
We are today discussing the last lesson of the topic on General Accounting entries made at branch level.
I hope you have now fairly understood how any accounting transaction flows from the
Individual ac > Individual ledger head > Cash Book or Day book > General Ledger > GLBB or Trial Balance
eg Cash Deposit by S for a FD for Rs100
Debit Cash Rs.100
Credit FD ac of "S" Rs100

GL Fixed Deposit ac will go up by Rs100
GL Cash ac will go up by 100.

In GLBB (Trial Balances) will go up
Liability side FD by 100
Asset side Cash by 100
Now let us talk about off balance items also called as below the line balances. The bankers commonly handle business of issuance of handling Bank Guarantee and Issue Letter of Credit on behalf of their customers. In these cases bank accept the contingent liabilities at the time of issue. Contingent liabilities ie contracts are those which dependent upon happening or not happening of an event. It means under a BG or LC a bank may or may not have to incur liability.If a liability is incurred the amount is recoverable from the customers. A banker has to keep track of BG/LC and account for these financial transaction.Hence bank makes a entry creating a liability( Amount may be payable on future date) on one hand and an asset ( Amount recoverable from client if required).These are called as Contra entries.
A BG is issued on behalf of client 'O' . The entry will be made in BG ledger account of 'O'.
Ledger ac O. Limit Rs1 lac
Date. Particular Dr Cr O/S
12 May16 To BG no1 0.05 - Dr.0.05
Entry in books ie Cash book or Day book
Dr BG Granted 5,000
Cr BG Issued. 5,000

On issue of Letter of Credit
say on behalf of client 'Q' say limit 2 lac
Entry in LC ledger
DT. Particular. Dr. Cr. Balance
12/5/16 LC no1 Rs.2lac - Dr2 lac
The entries passed in GL (Day book)
Dr LC granted. Rs 2 lac
Cr LC issued. Rs 2 lac

Similarly bankers accept, or co-accepts Bills of exchange for customers ie it is an undertaking by writing on bill of exchange that bills will be honoured (paid) on due date if not paid by acceptor.
For this also the accounting entries are passed as there is a liability to pay and right to recover the amounts, similar to BG/LC.
Dr Customers liability on bills accepted say Rs.5 lac
Cr Acceptances on behalf of customers say Rs5 lac
Another incidental service bankers give is
1 Collection of Outwad Cheques and Bills.
Imagine a cheque payable a branch/bank located elsewhere and can't be lodged in clearing. Such cheques not to be sent to other city for collection and will realise ie bank will get payment after certain period.To bring these cheques in accounting system again contra is raised at despatching branch.
Dr OCC outward Cheques receivables
Cr Outwards cheques sent on collection.
Similar will be the case when Bills of exchange are sent for collection by branch to other branch/bank.
Dr Bills Receivables Rs 1 lac
Cr Bills sent for Collection. Rs 1lac

Similarly some firms/companies send bills of exchange to Banks directly for collection. Entries made in such cases are
Dr Sundry Inward Bills Receivables
Cr Sundry Bills for Collection

Remember the bankers maintain ledger for each head like OCC, OBC, Br IBC, Sundry IBC.and total of each head tallies with corresponding Contra Entries head.

On cancellation of BG or payment under BG; On negotiation of bills under LC or expiry or cancellation of LC the amount of Reversal Contra is released.Say
Dr BG/ LC Issued
Cr BG/LC Granted.
In case of collection of cheques and bills relevet ACS
Dr OCC/OBC/IBC /Sr IBC
Cr OCR/OBR/IBR/Dr IBR
This helps to control and tally the different account heads.
I will add one more head and complete the discussion. Some branches handle the Government say accepting deposit under Senior Citizens Deposit Scheme or maintain PPF accounts. We collect deposit for Government and remit funds to them and while we pay we recover the amount from Govt.
Such ACS are contra accounts and maintained as SCDS/PPF Collected and Remitted ACS.

"In most of the cases with CBS platform these entries are made automatically by the system".
Now finally a GLBB (Trial Balance Book)will look as:

The GLBB or Day Book will look as
As at..............
Liabilities. | Assets
SB Dep. 328.00 | Cash on 18.58
CD. 117.79| SBI. 5.00
Furniture 10.00
FD. 515.00|Stationery. 2.00
| HO ac. 0.00
HO ac. 265 .00|DL. 200.00
| TL. 310.00 Profit&Loss$20.20| CC. 250.00
| OD. 450.21
PPF Collected1.00|PPF Remit. 1.00
----------------------------------------------
Total. 1246.79|Total. 1246.79

BG issued. 0.05|BG Granted.0.05
LC Issued 2.00|BG granted. 2.00 OBC. 1.00| OBR. 1.00
OCC. 2.00|OCR. 2.00
BIBC. 3.00| BIBR. 3.00
SIBC. 0.05.| SIBR. 0.05 --------------------------------------------------------
Total. 1254.89| Total 1254.89 ---------------------------------------------------------
I am closing the topic. If you have any explanation to seek ,freely speak,write to me.
"All aspiring officers read Banking Beyond Books", a book which will give vision to take up higher responsibilities. SMS details of name,address with pin on my mobile 7350901500.It is an investment of mere Rs270 .

Waman Gokhale
7350901500
waman.gokhale@gmail.com