Personal Banking

I thought i would go ahead and write this article just as a little introduction to Personal Banking. Some of the main functions mentioned only. This should give some basic information you need to know about Personal Banking.

Current accounts

A current account is an account which allows customers to take out or withdraw money, with no restrictions. Money in the account does not usually earn a high rate of interest: the bank does not pay much for 'borrowing' your money. However, many people also have a savings account or deposit account which pays more interest but has restrictions on when you can withdraw your money. Banks usually send monthly statements listing recent sums of money going out, called debits, and sums of money coming in, called credits.
Nearly all customers have a debit card allowing them to make withdrawals and do other transactions at cash dispensers. Most customers have a credit card which can be used for buying goods and services as well as for borrowing money. In some countries, people pay bills with cheques. In other countries, banks don't issue chequebooks and people pay bills by bank transfer. These include standing orders, which are used to pay regular fixed sums of money, and direct debits, which are used when the amount and payment date varies.

Banking products and services

Commercial banks offer loans - fixed sums of money that are lent for a fixed period (e.g. two years). They also offer overdrafts, which allow customers to overdraw an account - they can have a debt, up to an agreed limit, on which interest is calculated daily. This is cheaper than a loan if, for example, you only need to overdraw for a short period. Banks also offer mortgages to people who want to buy a place to live. These are long-term loans on which the property acts as collateral or a guarantee for the bank. If the borrower doesn't repay the mortgage, the bank can repossess the house or flat - the bank takes it back form the buyer, and sells it.
Banks exchange foreign currency for people going abroad, and sell traveller's cheques which are protected against loss or theft. They also offer advice about investments and private pensions plans - saving money for when you retire from work. Increasingly, banks also try to sell insurance products to their customers.

E-banking

In the 1990s, many commercial banks thought the future would be in telephone banking and Internet banking or e-banking. But they discovered that most of their customers preferred to go to branches - local offices of the bank - especially ones that had longer opening hours, and which were conveniently situated in shopping centres. However E-banking is still getting increasingly popular for it's convenience, especially after making it more user-friendly. Currently Internet banking allows customers to, for example, transfer funds, pay bills, view checking and savings account balances, pay mortgages,purchasing financial instruments and certificates of deposit, etc. This has lead to millions of people using E-banking daily.

Two commonly misunderstood financial statements

There are two commonly misunderstood financial statements which tend to generate loads of questions for people. So i decided to write a little article about them and clarify what they mean. I hope this will be helpful.

The profit and loss account

P&L Account
Sales Revenue						48,782
Cost of Sales						33,496
Gross Profit						15,286
Selling, General and Administrative Expenses						10,029
Earnings before Interest, Tax, Depreciation and Amortization						5,257
Depreciation and Amortization						1,368
Earnings before Interest and Tax						3,889
Interest expenses						257
Income Tax						1,064
Net Profit						2,568

Companies' annual reports contain a profit and loss account (commonly referred as P&L). This is a financial statement which shows the difference between the revenues and expenses of a period. Non-profit ( or not-for-profit) organizations such as charities, public universities and museums generally produce an income and expenditure account. If they have more income than expenditure this is called a surplus rather than profit.
At the top of these statements is total sales revenue or turnover: the total amount of money received during a specific period. Next is the cost of sales, also known as cost of goods sold (COGS): the costs associated with making the products that have been sold, such as raw materials, labour, and factory expenses. The difference between the sales revenue and the cost of sales is gross profit. There are many other costs of expenses that have to be deducted from gross profit, such as rent, electricity and office salaries. There are often grouped together as selling, general and administrative expenses (SG&A).
The statement also usually shows EBITDA (earnings before interest, tax, depreciation and amortization) and EBIT (earnings before interest and tax). The first figure is more objective because depreciation and amortization expenses can vary depending on which system a company uses.
After all the expenses and deductions in the net profit, often called the bottom line. This profit can be distributed as dividends (unless the company has to cover past losses), or transferred to reserves.

The cash flow statement

British and American companies also produce a cash flow statement. This gives details of cash flows - money coming into and leaving the business, relating to:

• operations - day-to-day activities
• investing - buying or selling property, plant and equipment
• financing - issuing or repaying debt, or issuing shares.

The cash flow statement shows how effectively a company generates and manages cash. Other names are sometimes used for it, including funds flow statement and source and application of funds statement.
British companies also have to produce a statement of total recognized gains and losses (STRGL), showing any gains and losses that are not included in the profit and loss account, such as the revaluation of fixed assets.

The balance sheet, part III

This is the last part of the balance sheet series. I'm hoping to get into more detail about liabilities in this part. Hopefully this can be helpful. Read the previous part here.

Liabilities

Liabilities are amounts of money that a company owes, and are generally divided into two types - long-term and current. Long-term liabilities or non-current liabilities include bonds.
Current liabilities are expected to be paid within a year of the date of the balance sheet. They include:

• creditors - largely suppliers of goods or services to the business who are not paid at the time of purchase.
• planned dividends
• deferred taxes - money that will have to be paid as tax in the future, although the payment does not have to be made now.

Current liabilities
Short-term debt 1,555
Accounts payable	5,049
Accrued expenses 8,593
Total current liabilities	$15,197
Non-current liabilities
Deferred income taxes 950
Long-term debt	4,603
Total non-current liabilities Total liabilities	5,553 $20,750
Shareholders' equity Common stock Retained earnings Total shareholders' equity	10,309 3,900 14,209
Total liabilities and stockholders' equity	$34,959

Accrued expenses

Because of the matching principle, under which transactions and other events are reported in the periods to which they relate and not when cash is received or paid, balance sheets usually include accrued expenses. These are expenses that have accumulated or built up during the accounting year but will not be paid until the following year, after the date of the balance sheet. So accrued expenses are charged against income - that is, deducted from profits - even though the bills have not yet been received or the cash paid. Accrued expenses could include taxes and utility bills, for example electricity and water.

Shareholders' equity on the balance sheet

Shareholders' equity is recorded on the same part of the balance sheet as liabilities, because it is money belonging to the shareholders and not the company.
Shareholder's equity includes:

• the original share capital (money from stocks or shares issued by the company
• share premium: money made f the company sells shares at above their face value - the value written on them
• retained earnings: profits from previous years that have not been distributed to shareholders
• reserves: funds set aside from share capital and earnings, retained for emergencies or other future needs.