Lesson No. 5 – GL

G L Lesson no 5

(Good evening my young f b friends
12/05/2016)
Summary of what we learnt till date.
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1 As per principles of double entry book keeping for every Credit entry there will be a Debit entry and vice a versa.
2 A person and his business are different entities (& hence capital provided by the entrepreneurs is a liability of the enterprise towards individual entrepreneurs).
3 Liabilities are those which are payable by the enterprise. They are reflected as CREDIT balance.
4 Assets are things owned or receivables of the enterprise. They are reflected as DEBIT balances
5 All the accounts are classified under Three heads and have different rules.
(5a) Personal Accounts:
All Deposit or Loan accounts of persons, firms,clubs,huf, company,schools, institutions,govt organizations etc fall under it.
The governing principal:
Debit the receiver
Credit the giver
Eg, Transfer money from ac A to Ac B
Dr A
Cr B

(5b) Real Accounts:
They are accounts of all tangible things like Cash ( or cash equivalent like SBI or HO ac in books of the bank) Land & building,Fur and Fixture, Stationery, Vehicles etc.
Those are articles having physical existence and can be perceived,touched..)
The governing principal
Debit what Comes in
Credit what Goes out

(5c) Nominal Accounts:
Those are Profit and Loss accounts or Income & Expenses accounts.The governing principal applied is
Debit all Expenses & Losses
Credit all Incomes & Profits.

6 As we enter the different transactions with the clients or undertake business transactions,they are recorded in our books of accounts as :
Individual Ledger Accounts > Cash book (or Day book) > General Ledger > GLBB (Trial Balance Book or Balance Sheet of that day).
(GLBB- general ledger balance book).

7 We get a GLBB at the day end.

8 Now all these accounts are on CBS platforms.Hence for a branch the individual ACS are maintained at HO server and the transactions are "Real Time" ie updated instantly. At HO server both accounts under individual heads, Branch wise and for the Bank as such gets updated. Thereby HO provides each Branch GLBB (Trial Balances).
(Of course it is a very very simplified way of looking at maintaining rather manipulating accounts on CBS).
9 .All the Debit and Credit transactions in a bank can be classified in 3 groups
i Cash Transactions
ii Transfer Transactions
iii Clearing Transactions

10 Transaction no iii takes place through acs in other banks or Clearing House eg SBI/RBI ( any other bank handling clearing).The bank branch maintain accounts with clearing handling Bank.
11 Each branch maintains HO ac in their books through which the Inter branch transactions are enrooted.,,(It is a Real ac.) Otherwise each branch will require to have ACS of all other branches and Ho ac.

12. Excess cash is deposited with Currency Chest Branch or Clearing Handling Bank. It is the Head Office who invests this amount in SLR or other securities or loans to other branches.This is a function of Treasury Deptt.
13.HO maintenance accounts of all branches in their books to undertake interbranch transactions.
They in fact are mirror accounts.
If branch X issues a DD on branch Y transactions are
In the Books of Branch "X"
Debit Cash 7,050
Credit DD Issued ac 7,000
DD Commission ac 50

Debit DD Issued ac 7,000
Credit HO ac...... 7,000

At "HO" in their Books
Debit X branch ac. 7,000
Credit Y branch ac. .............7,000

On payment of DD at branch "Y"
DD paid ac 7,000
Credit. Cash or P's SB ac 7,000

Debit HO AC. 7,000
CREDIT DD paid ac. 7,000
Thus the system of mirror ACCTS works.

13 Currency Chest : It is an extension of RBI ie Banks.The banks are authorised by RBI & C Chest is an extended arm of RBI. Cash deposited there is deemed as cash deposited with RBI and withdrawal also. The cash there is Cash on hand or Cash with RBI and is eligible for CRR.
14 Thus the build up of Branch GL/ GLBB(Trial balances) takes place.

15 The name of HO ac in some banks is
Head Office ac
Central Office ac
Branch Clearing General Accounts.
Etc.
I appeal to bankers to inform the nomenclature used in your bank.

Read "Banking Beyond Books" a classic book which teaches skills required in the life of a banker.
SMS on 7350901500 for the book.

Waman Gokhale
waman.gokhale@gmail.com