clearing system calculates the net flows between the member clearing banks
and these are the settlements that they make between themselves. Thus the
system of clearing cheques represents another way society reduces the costs
of making transactions.
The Balance Sheet of the London Clearing Banks.
Балансовый отчет лондонских клиринговых банков
Таbl. 7 shows the balance sheet of the London clearing banks. Although
more complex, it is not fundamentally different from the balance sheet of
the goldsmith-banker shown in Таbl 6. We'll begin by discussing the asset
side of the balance sheet.
|Assets |Јb |Liabilities |Јb |
|Sterling: Cash Bills and |2,9 |Sterling: Sight deposits |54,1 |
|market loans |34,7 |Time deposits | |
|Advances |83,0 |CDs |59,9 |
|Securities |9,4 | | |
|Lending in other |54,6 |Deposits in other |8,1 |
|currencies Miscellaneous |15,5 |currencies Miscellaneous | |
|assets |200,1 |liabilities |46,2 |
|TOTAL ASSETS | |TOTAL LIABILITIES |31,8 |
| | | |200,1|
Cash assets are notes and coin in the banks' vaults. However, modem
banks' cash assets also include their cash reserves deposited with the Bank
of England. The Bank of England (usually known as the Bank) is the central
bank or banker to the commercial banks.
Apart from cash, the other entries on the asset side of the balance
sheet show money that has been lent out or used to purchase interest-
earning assets. The second item, bills and market loans, shows short-term
lending in liquid assets.
Liquidity refers to the speed and the certainty with which an asset can
be converted back into money, whenever the asset-holders desire. Money
itself is thus the most liquid asset of all.
The third item, advances, shows lending to households and firms. A firm
that has borrowed to see it through a sticky period may not be able to
repay whenever the bank demands. Thus, although advances represent the
major share of clearing bank lending, they are not very liquid forms of
bank lending. The fourth item, securities, shows bank purchases of interest-
bearing hug-term financial assets. These can be government bonds or
industrial shares. Although these assets are traded daily on the stock
exchange, so in principle these securities can be cashed in any time the
bank wishes, their price fluctuates from day to day. Banks cannot be
certain how much they will get when they sell out. Hence financial
investment in securities is also illiquid.
The final two items on the asset side of the balance sheet show lending
in foreign currencies and miscellaneous bank assets. Total assets of the
London clearing banks were Ј200,1 billion. We now shall examine how the
equivalent liabilities were made up.
Deposits are chiefly of two kinds: sight deposits and time deposits.
Whereas sight deposits can be withdrawn on sight whenever the depositor
wishes, a minimum period of notification must be given before time deposits
can be withdrawn. Sight deposits are the bank accounts against, which we
write cheques, thereby running down our deposits without giving the bank
any prior warning. Whereas most banks do not pay interest on sight deposits
or cheque (checking) accounts, they can afford to pay interest on time
deposits. Since they have notification of any withdrawals, they have plenty
of time to sell off some of their high- interest investments or call in
some of their high-interest loans in order to have the money to pay out
deposits.
Certificates of deposit (CDs) are an extreme form of time deposit where
the bank borrows from the public for a specified period of time and knows
exactly when the loan must be repaid. The final liability items in Таbl. 7
show deposits in foreign currencies, miscellaneous liabilities, such as
cheques, in the process of clearing.
VOCABULARY NOTES
a financial intermediary - финансовый посредник
to bring together - соединять, сводить вместе
insurance companies - страховые компании
pension lands - пенсионные фонды
the money stock - денежная масса, деньги в обращении
to issue deposits - открывать вклады
the National Girobank - англ. Национальный жиробанк
trustee saving banks - доверительные сберегательные банки
London clearing banks - лондонские клиринговые банки (банки - члены
расчетной палаты)
a central clearing house - центральная расчетная палата
inter-bank accounts - межбанковские счета
Barclays - Барклайз банк (Великобритания)
Lloyds - Ллойдз банк (Великобритания)
to credit - кредитовать
to debit - дебетовать
cheque recipient - получатель чека
cash assets - денежные активы
the Bank of England - Банк Англии, Английский банк
interest-earning (syn. interest-bearing) assets - активы, приносящие
процентный доход
bills and market loans - векселя и рыночные займы
short-term lending - краткосрочное кредитование
liquid (ant. illiquid) assets - ликвидные активы
liquidity - ликвидность
advances - ссуда в вида аванса
a sticky period - трудный период
securities - ценные бумаги
interest-bearing long-term financial assets - долгосрочные финансовые
активы, приносящие процентный доход
government bonds - государственные облигации
industrial shares - промышленные акции
the stock exchange - фондовая биржа
niscellaneous bank assets - прочее имущество банка
sight deposit - депозит до востребования; бессрочный вклад
time deposit - срочный вклад
to withdraw - отзывать (вклад)
to run down a deposit - уменьшать вклад
cheque (checking) accounts - текущий (чековый) счет
to sell off - распродавать
cad in high-interest loans - требовать возврата займов (требовать
уплаты процентов)
certificates of deposit - депозитные сертификаты
miscellaneous liabilities ' прочие (другие) пассивы
1. GENERAL DEFINITION OF ACCOUNTING
Today, it is impossible to manage a business operation without
accurate and timely accounting information. Managers and employees,
lenders, suppliers, stockholders, and government agencies all rely on the
information contained in two financial statements. These two reports — the
balance sheet and the income statement — are summaries of a firm's
activities during a specific time period. They represent the results of
perhaps tens of thousands of transactions that have occurred during the
accounting period.
Accounting is the process of systematically collecting, analyzing, and
reporting financial information. The basic product that an accounting firm
sells is information needed for the clients.
Many people confuse accounting with bookkeeping. Bookkeeping is a
necessary part of accounting. Bookkeepers are responsible for recording (or
keeping) the financial data that the accounting system processes.
The primary users of accounting information are managers. The firm's
accounting system provides the information dealing with revenues, costs,
accounts receivables, amounts borrowed and owed, profits, return on
investment, and the like. This information can be compiled for the entire
firm; for each product; for . each sales territory, store, or individual
salesperson; for each division or department; and generally in any way that
will help those who manage the organization. Accounting information helps
managers plan and set goals, organize, motivate, and control. Lenders and
suppliers need this accounting information to evaluate credit risks.
Stockholders and potential investors need the information to evaluate
soundness of investments, and government agencies need it to confirm tax
liabilities, confirm payroll deductions, and approve new issues of stocks
and bonds. The firm's accounting system must be able to provide all this
information, in the required form.
2. THE BASIS FOR THE ACCOUNTING PROCESS
The basis for the accounting process is the accounting equation. It
shows the relationship among the firm's assets, liabilities, and owner's
equity.
Assets are the items of value that a firm owns —'cash, inventories,
land, equipment, buildings, patents, and the like.
Liabilities are the firm's debts and obligations — what it owes to
others.
Owner's equity is the difference between a firm's assets and its
liabilities — what would be left over for the firm's owners if its assets
were used to pay off its liabilities.
The relationship among these three terms is the following:
Owners' equity = assets - liabilities
(The owners' equity is equal to the assets minus the liabilities)
For a sole proprietorship or partnership, the owners' equity is shown
as the difference between assets and liabilities. In a partnership, each
partner's share of the ownership is reported separately by each owner's
name. For a corporation, the owners' equity is usually referred to as
stockholders ' equity or shareholders ' equity. It is shown as the total
value of its stock, plus retained earnings that have accumulated to date.
By moving the above three terms algebraically, we obtain the standard
form of the accounting equation:
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