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Bank Accounting
Banks are businesses. And, like businesses, they track their financial position using a balance sheet statement. In a balance sheet, assets (what is owned) are listed on the left side and liabilities+equity is listed on the right. (liabilities are the amounts owed to others). The statement must always balance. The following must be always be true:
Total Assets = Total Liabilities+Equity
What makes bank balance sheets appear different at first, is that
loans are considered assets and deposits are liabilities. This is, of course different from how customers view it. But the statements are from the bank’s point of view.
- A bank deposit is a liability to the bank – the bank is responsible for paying the money back to the customer
- A loan is an asset of the bank – the bank owns the right to collect the money from the borrower.