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Outline

Accounting as an Information system

Accounting Equation
Accounting assumption principles
Bank accounting documents
Accounts System of credit institutions
Chapter 1

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Accounting as an Information system Accounting as an Information system

1. Identifying business activities

Business
=> 2. Recording business activities activities

 => 3. Communicating business

activities

Decision
Accounting
Makers

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Users of accounting information Bank Accounting

Internal users Financial Bank Management

 Managers Accounting Bank Accounting
 Officers
• Provides • Provides
 Internal Auditors financial information
External users information to needs for bank’s
 Creditors being used internal decision
internally by makers
 Current & Potential Investors bank
 Government Agencies management
 Other groups and to bank’s
external users
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Law on Accounting (Nov 2015)
- Accounting means collection, processing, inspecting,
analysis, and provision of economic, financial information in
the form of value, objects, and working hours.
- Financial accounting means collection, processing,
inspecting, analysis, and provision of economic, financial
information in the form of financial statements for entities
that need information about the accounting unit.
- Administrative accounting means collection, processing,
inspecting, analysis, and provision of economic, financial
information to serve administrative requirements and the
making of internal economic, financial decisions of the
accounting unit.
(Article 8.3, 8.4 LoA)
 Assets;
 Liability and owner’s capital;
 Revenues, operating cost, incomes, and other cost;
 Taxes and amounts payable to state budget;
 Business outcome and distribution thereof;
 Other property, assets, and liabilities related to the
accounting unit.
 Financial and credit investment;
 Internal and external payments of the accounting unit;
 Commitments, guarantees, valuable papers.

Bank accounting:
Accounting activities in banks

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Question Bank’s Financial Statement

 What does bank accounting cover?  Financial statements of an accounting unit include:
- Financial condition statement;
 Assets, source of assets, the fluctuation of assets in - Business performance statement;
business cycle - Cash flow statement;
 Income, expenses & profit / loss - Note to financial statements;
 Off balance sheet exposures - Other statements defined by law

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Bank’s Financial Statement Accounting Equation

 Financial condition statement (Balance sheet)  Assets = Liabilities + Owners’ Equity

 Financial statement that shows the value of the bank’s
assets and liabilities and owners’ equity (stockholders’  Assets?
equity) at a particular point in time  Liabilities?
 Business performance statement (Income statement)  Owners’ Equity?
 Financial statement that shows the bank’s revenues,
expenses, and net income over a period of time

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Accounting Equation

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Accounting requirements (Article 5 LoA) Example (Unit: bil VND)
 1. All economic/financial transactions are fully recorded into Assets Amount Liabilities & OE Amount
accounting records, accounting books, and financial Cash 10.000 Liabilities
statements.
 2. Accounting information and data are recorded in a timely Deposit at SBV 20.000 Deposit from 160.000
manner. Customers
 3. Accounting information and data are recorded in a clear, Loans 150.000 Account Payable 20.000
understandable, and accurate timely manner. Fixed Assets 15.000 Owners’ Equity
 4. Status, nature, contents, and value of economic/financial Account 5.000 Common Stock 20.000
transactions are recorded truthfully and objectively. Receivale
 5. Accounting information and data must be continuously Total 200.000 Total 200.000
recorded from the beginning to the end of every economic,
financial activity, from the establishment to the shutdown of
the accounting unit; the accounting data of a period must
continue that of the previous period.
 6. Accounting information and data are classified and
sorted systematically in a way that can be compared and
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Transaction Analysis Principles of bank accounting
Historical Cost
Accrual basis
Matching principle
Consistency
Prudence
Materiality

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Historical Cost Accrual basis

 Values of assets and liabilities must be
recorded according to their original prices.
 Continue to value assets and liabilities at
historical cost until sold
 More objective than market value
 The accounting unit must collect, record
economic/financial transactions that occur
objectively, fully, truthfully, and in the correct
accounting period
 Revenue and expenses are recorded in the
period in which they are earned or incurred
regardless of whether cash is received or
disbursed in that period

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Matching principle Consistency

 Expenses should be matched with revenues
 Matching revenues and expenses means that
it is easier to assess the profit or loss of a
particular activity
 Chosen regulations and accounting method
must be consistently applied throughout the
fiscal year
 Where the chosen regulations and accounting
method are changed, the accounting unit
must provide explanation in its financial
statement

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Prudence Materiality
 Accounting units shall apply methods for  Can sometimes bend the rules if insignificant
evaluation of assets, distribute the revenues  If a rule is temporarily ignored, the net income
and expenditures carefully of the company must not be significantly
 Do not falsify the results of their economic, affected, nor should the reader’s ability to
financial activities judge the financial statements the impaired

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Analyzing & Recording Process Accounts System of the Banks
1. Analyze each transaction & event from Accounts system shall be applicable to
source documents credit institutions, foreign bank branches
which are established and operate in
2. Record relevant transaction & event in a accordance with the Law on Credit
journal institutions
3. Post journal information to ledger
account
4. Prepare & analyze the trial balance

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ACCOUNTS SYSTEM OF CREDIT INSTITUTIONS Accounts System of the Banks
Decision No. 479/2004/QD-NHNN dated Category 1: Available funds and
29/4/2004 of the Governor of SBV investments
Decision No. 1146/2004/QĐ-NHNN dated Category 2: Credit activities
10/9/2004 of the Governor of SBV Category 3: Fixed assets and other Assets
Circular 10/2014/TT-NHNN dated Category 4: Payables
20/3/2014 of the Governor of SBV Category 5: Payment activities
Circular 49/2014/TT-NHNN dated Category 6: Owner capital sources
31/12/2014 of the Governor of SBV
Category 7: Incomes
Circular 22/2017/TT-NHNN dated
Category 8: Expenses
29/12/2017 of the Governor of SBV
Category 9: Off-balance sheet accounts

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Ledger and T- account

Asset: Categories 1, 2, 3, 5 The ledger is a collection of all accounts

for an information system. A company’s
Liability: Categories 4, 5 size and diversity of operations affect the
Capital: Category 6 number of account needed.
A T-account represents a ledger account
Profit: Category 7
and is a tool used to understand the
Expense: Category 8 effects of one or more transactions.
Footnotes: Category 9

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T- account T- account
Consolidated accounts
T - account
 Tier I
 Tier II
Left side Right side  Tier III
Debit Credit Detailed accounts
 Credit institutions may open extra detailed
accounts according to operational
management requirements upon necessity

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ACCOUNTS SYSTEM OF CREDIT INSTITUTIONS Entry method
The accounting on the balance sheet
CODE OF Account names CODE OF Account
accounts shall be made under the double
ACCOUNT ACCOUNT names entry method
10xx – 16xx Available funds and 60xx – 69xx Owner capital
investments sources
20xx – 29xx Credit activities 70xx – 79xx Incomes The accounting on the off-balance sheet
30xx – 39xx Fixed assets and
other Assets
80xx – 89xx Expenses accounts shall be made under the single
40xx – 49xx Payables 90xx – 98xx Off-balance
entry method (Debit - Credit – Debit
sheet accounts balance)
50xx – 56xx Payment activities

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T- account T- account

Assets Liabilities

Credit (-) Debit (-) Credit (+)

Debit (+)

Balance Balance

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T- account T- account

Equities Revenues

Credit (+) Debit (-) Credit (+)

Debit (-)

Balance Balance:

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T- account Double – entry accounting
Transaction 1: Shareholders invested VND
Expenses
500 bil

Debit (+) Credit (-) Asset = Liabilities + Equity

+500 +500

Balance:

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Double – entry accounting Double – entry accounting
Transaction 2: Lending to customer VND Transaction 3: customer withdral VND 100
50 mil in cash mil from her account

Asset = Liabilities + Equity Asset = Liabilities + Equity

+50 -100 -100
- 50

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Bank Documents Problems
Used for recording banking transactions
Determine the precision, honesty of Draw up ABC bank’s balance Sheet as 31 Dec,
accouting information, hence help to 2016 from the following information (billion VND
protect the entities’ properties unit)
Items Amount Items Amount
Help to classify and collect banking
Cash 10 Trading 24
transaction to be object-oriented recorded securities
into journal and ledger Loan from other 27 Customer 160
credit institution Deposit
Being legal basis for accouting data, and Loans to customers 150 Retained 1
for specifying the interest parties’ Earning

responsibilities relating to transactions Balance at SBV 12 Authorized 12

capital
Other assets 4

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Problems
Show the effect of the following transactions (30
Nov 2016) on ABC Bank’s Balance Sheet
1. Bank buys fixed assets VND 1 bil in cash
2. Customer A repay the loan: VND 300 mil in
cash and VND 80 mil from her deposit account
3. Granting a loan to customer B of VND 150 mil:
by cash VND50 mil, the rest is tranferred to
beneficiary account
4. Purchase investment securities VND 30bil in
cash
5. Issue bonds at par: VND 50 bil in cash
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