Monday, June 15, 2009

the commercial bank balance sheet

like all business firms, commercial bank use balance sheets on which the total value of assets must equal the total value of liabilities plus net worth. the major kinds of bank assets and liabilities are shown on the sample balance sheet of the first national bank of yourtown. the classification of assets and liabilities is actually taken from the annual report of major commercial bank. Other banks have a somewhat different method of presenting balance sheet items; for example, demand deposits and time deposits may simply be presented as one item, deposits.
the major items of concern are the first four on the asset side and the first three on the liability side. Before we examine the nature of these items, the student should be reminded that no particular item on the asset side is matched by a corresponding item on the liability side. it is necessary, however, in using a balance sheet to change the total amount of assets, say, if the total amount of liabilities plus net worth changes, and vice versa. the balance sheet must always balance, because total assets always equal total liabilities plus net worth.

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