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 Liquidity ratios: These ratios measure a company's ability to pay off its short-term debts as they become due, using the company's current or quick assets. Examples of liquidity ratios are the current ratio, the quick ratio, and the working capital ratio  Leverage ratios: These ratios measure how much debt a company is using to finance its assets relative to its equity. Examples of leverage ratios are the debt-to-assets ratio, the debt-to-equity ratio, the debt-to-capital ratio, and the debt

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0% found this document useful (0 votes)
56 views

Training

 Liquidity ratios: These ratios measure a company's ability to pay off its short-term debts as they become due, using the company's current or quick assets. Examples of liquidity ratios are the current ratio, the quick ratio, and the working capital ratio  Leverage ratios: These ratios measure how much debt a company is using to finance its assets relative to its equity. Examples of leverage ratios are the debt-to-assets ratio, the debt-to-equity ratio, the debt-to-capital ratio, and the debt

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You are on page 1/ 72

FINANCIAL POLICIES AND PROCEDURE

NOVEMBER
27, 2021
FINFINE ETHIOPIA
Objectives of Accounting

1). To Ascertain(mirkaneessuu) Profitability;

 With the help of accounting, we can evaluate the


profits and losses incurred during a specific
accounting period.

 With the help of a Trading and Profit & Loss Account,


we can easily determine the profit or loss of a firm.
Cont…
2). To Assist in Decision-Making:

 To take decisions for the future, one requires accurate


financial statements.

 Thus, accounting gives you the platform to plan for the


future with the help of past records

 Bank’s Decision maker uses different financial


reports a bank organ to monitor their performance.
Cont…

3). To fulfill compliance of Law:

 Accounting helps in running a business in compliance


with the law.

 Bank uses its Accounting information to comply with


different local and international rules and
regulations like, payment of taxes , Financial
Reporting Standards…
Accounting Concepts
 According to the Objective Evidence concept, every financial
entry should be supported by objective evidence.

 The following evidence for Bank to support different


transaction

Banks MFIs
 Saving Withdrawal form Loan Disbursement Sheet [LDS]
 Cash Deposit Form Cash Receipt Voucher
 Cheque Petty Cash Payment Voucher
 CPO Cash Payment Voucher
 LMTS Application Internal Cash Receipt Voucher
Users of Account Information

 Investors in a business enterprise need information about


its financial status and its future prospects.

 Banks and suppliers appraise the financial soundness of a


business organization and assess the risks involved.

 Government agencies are concerned with the financial


activities of business organization for purposes of taxation
and regulation.

 Employees and their union representatives are also


vitally interested in the stability and the profitability of
the organization that hires them.
Cont…

 Managers relies upon accounting:

 To provide the amount owed to each creditor and by


each customer and the date each payment is due.

 To assist them in evaluating current operations and in


planning future operations
Users of Accounting & Financial Reporting
Types of Source Document For Bank
 They may include invoices, bills, delivery notes, Cheques,
deposit/deal slips, withdrawal vouchers, debit/ credit notes of
organizations, contracts, official letters and memorandum,
statements, etc., depending on each particular case to support
the various transactions.

 Cash Deposit Voucher

 Cash Withdraw Voucher

 Local Money Transfer Receiving Form

 Deposit Slip for cheque


Types of ledgers

 General ledger;
 Which shows the summary of all transactions of each
classification of Assets, Liabilities, Income and
Expense accounts

 The aggregate balance of each group of subsidiary


ledger accounts should agree with their respective
balance of the general ledger
Subsidiary ledger
 Subdivisions of general ledger accounts and contain
detailed information for the balance in the general
ledger accounts.

 With proper and accurate posting the total figures in


the subsidiary ledger accounts of the same
classifications should agree with the balance of
respective general ledger accounts.

 Since the general ledger accounts are used to prepare


financial statement ,it is important to make sure that
the subsidiary ledger balance are reconciled to the
general ledger before preparing financial statements.
Account Classification

 Accounts are classified in to the following major


categories ;
1) Assets
2) Liabilities
3) Capitals
4) Revenues
5) Expenses
Cont…

 Asset
 Expense Normal Debit Balances
 Contingent Asset

 Liabilities
 Capital
 Reserve(retain for future use.) Normal
Credit Balance
 Income
 Contingent Liability
Cont…
 The accounts are arranged in the ledger in numerical
order. As a result, they can be located quickly.
 The balance sheet accounts are usually listed first, in
the order of Assets, liabilities, and owner's equity.

Assets = Liabilities + Owners' Equity


 The income statement accounts are then listed in the
order of revenues and expenses. Each of these major
account classifications is briefly described below.
Cont…

 Assets 100-199
 Liabilities 200-299
 Equities 300-399
 Revenues 400-499
 Expenses 500-699
Collecting and Analyzing Source Document

 Source documents shall always be original and be


attached to the relevant transaction ticket to support
the corresponding entries, or they shall be properly and
separately filed for transaction and documentation
purposes.
 Each type of source document shall be checked and
approved for its appropriateness and/or genuineness
before the corresponding transaction entries are posted.
 Bank has authorization limit for each transaction
based on their level authorization
Posting in the Journal
 Journal is a book that is maintained on a daily basis
for recording all the financial entries of the day.

 Passing the entries is called journal entry.

 Journal entries are passed according to rules of debit


and credit of double entry system

 Banks Uses its Application to process its transaction


Discussion Questions

 Discuss on Source Document and the rules of Debit


and Credit for Asset and liability by mention their
normal balance.

 Discuss on the accounting Cycle and the rules of


debit and Credit for Capital, Income and Expense by
mentioning their normal balance.
Internal Account and Entry Management
Training Objective
 At the end of this unit the trainee will understand

 The most frequently used internal Account in Bank


branch Operation

 Understand and Journalize the most frequently


transaction in Bank Branch Operation
Internal Account
 Internal accounts are the Bank's own accounts for
which it uses to maintain all relevant transaction
information.

 They are Classified based on the five major


Account groups.
 Asset

 Liability

 Capital

 Income

 Expense
Asset Accounts
 It refers to the property owned or possessed by the
business.

 Asset in Bank are Classified under the following


Sub Headings

 Cash Account

 Account Receivable

 Fixed Asset

 Intangible Asset

 Other Proprieties
Asset Accounts Sub Groups
 Acquired Properties

 Cheque Book Stocks

 Prepaid for Rent

 Account receivable

 Head Office Receivable


Cash Account

Cash in Cash in Imprest Cash in


Teller ATM Fund Vault
Cash –Teller
 This category shall be used to open and summarize
cash account by specific teller ID.

 It is used to receive and send cash from the Chief


Cashier, and Customer.
Cash in ATM
 This category shall be used to open and summarize
ATM cash accounts maintained by a branch

 Cash is loaded to the ATM Machine for the


customer to with draw by their VISA Card .And it is

Replenished(fill (something) up again.) When it


Finish.
Transaction

Customer service manager and Chief Cashier


loaded the branch ATM birr 800,000.

Debit: Cash ATM ……..800,000


Credit : Cash Teller………………….800,000
Cont…

Selam withdraw birr 4,000 from her saving


account by her ATM Card

Debit: Saving Account of Selam ……………4004


Credit: Cash ATM……………………………………………4,000
Credit : ATM
Commission………………………………….....4
Imprest Fund
 This category shall be used to open and summarize
individual accounts that record petty fund account
maintained by a branch or other Bank organs.

 It is used for small items expense by the branch.

 It is replenished at the end of every month and when it


finish the fund.

 As per the purchasing policy of the bank has practice of


setting petty cash balance to branch and head office organ
according to there grade and section. For example in
branch cases
Transaction

Your branch establish it’s imprest fund birr 600

Debit: Imprest Fund………………600


Credit: Cash Teller …………………………..600
Cont…

Replenish the Petty Cash for the month end


date with the following expense Birr 50
postage, Birr 30 Wage, Birr 110 Transport

Debit: Postage Expense…………50


Debit: Wage…………………………. 30
Debit :Transport …………………..110
Credit: Cash Teller…………………..…190
Cash in Vault
 This category shall be used to open Vault Cash account of
branches or other Bank organs.

 It is used to receive cash from The Chief Cashier and send


to the SCSO –Cash Till.
Discussion Question
 To be done Individually and discuss in the class

 Customer service manager and Chief Cashier loaded the


branch ATM birr 600,000.

 Ato Abebe withdraw birr 4,000 from his saving account by


his ATM Card

 Your branch establish it’s Petty Cash fund birr 300

 Replenish the Petty Cash for the month end date with the
following expense Birr 75 postage, Birr 25 Wage, Birr 35
Transport
Fixed Asset
 What is Fixed Asset?

 What are the classifications of FA?

 Why FA managed?

 What are standard fixed asset control procedures?


Fixed Asset
 Bank’s Fixed Asset are classified under the following sub
heading

 Premises

 Motor Vehicle

 Furniture and Fittings

 Office and Other Equipment

 Computer and Accessories

 ATM and POS(point of sales)


Fixed Asset …
 Currently in our bank all the accounting of the fixed
asset are healed at head office finance.

 But the role of the branch and other bank organ is to


use the fixed asset properly and control it.

 In addition to this branch and other bank organ should


maintain fixed register and reconcile the physical
Asset and register twice a year with head office
finance.
Cont…

 The bank use historical cost to record its fixed asset

 Our bank uses straight line basis to calculate the


depreciation expense of its tangible asset

 It is done at head office finance.


Intangible Asset

 Core Banking Software

 Card Banking Software

 Infrastructure and IT Security Software

 Smart Banking Software


Other Properties

 Construction in progress

 Maintenance in progress

 Work in progress in furniture workshop

 Project in progress
Prepaid for Rent

 This category shall be used to open and summarize


individual accounts that record payments made in
advance to governmental organizations or individuals
for the rental of a flat or a building.

 Such prepayments shall be expensed when the rental


period matures.
Transaction

Your branch rent from Ato Nega Tadesse birr


1,800,000 with out VAT due to the renewal of
branch rent for the coming 5 years.

Debit : Prepaid Rent…….2,070,000


Credit: Current Account of Nega…1,764,000
Credit: VAT Payable…...................270,000
Credit : Withholding Tax ……………………36,000
Cont…

At the end of the month your branch


accountant amortize Monthly rent
expense the entry is as follows;

Debit : Rent Expense …34,500


Credit: Prepaid Rent……34,500
Account Receivable

 There are different kind of receivable in Bank . The


following are most commonly used in branch :

 Adjustment and Refund Receivable

 Employee Salary Advance

 Leave Pay Advance

 Miscellaneous Account Receivable


Employees' Salary Advance

 This category shall be used to open and summarize


individual accounts that record a portion of the
monthly salary advanced to the Bank employees on
public holidays.
Cont…

The following staff have paid their net half


month salary
Genet Alemu ….3500
Solomon Yeminu …….2100
Ali Mohammed ………………..2000

Debit: Employee’s Salary Advance ..7,600

Credit: Various Cash on hand ……….7,600


Purchase Advance
 This category shall be used to open and summarize
any advances granted in the day-to-day activity of
the Bank organs.
Transaction

Your Branch paid birr 700 in


advance to the Branch
Accountant to purchase
Stationery Materials

Debit: Advance Payment..700

Credit :Teller Cash……………….700


Liabilities

 Liabilities are amounts owed to people or to


organizations outside of the business.

 In Bank liabilities are classified under the


following sub headings

 Account Payable

 Tax Payable

 Other Account Payable


Tax Payable
 Bank is one of the largest Tax Payer in our country. There fore it is necessary
to properly record any tax related activates and declare to Ethiopian Revenue
and Customs authority. The following are the major taxes that Bank Collect
and pay to ERCA.

 Employee Income Tax Payable

 Withholding Tax Payable(Withholding tax is a set amount of income

tax that an employer withholds from an employee's paycheck and

pays directly to the government in the employee's name. The

money taken is a credit against the employee's annual income tax

bill.)

 Value Added Tax Payable

 5% interest Tax Payable on Saving Deposit


Other Account Payable

 Customer’s Deposit

 Banks Pension Contribution Payable

 Graduate Cost Sharing Payable

 LMTS Payable

 Miscellaneous Account Payable


Banks’ Pension Contribution Payable

 This category shall be used to open and summarize


individual accounts to record Bank's contribution to the
pensions plans of its permanent employees to be
transferred to the appropriate social security organs of
the Government computed at a set rate by the organ of
the government on the basic staff salaries at the
payday.

 It is 11% of basic salary


Employees' Pension Contribution Payable

 This category shall be used to open and summarize


individual accounts to record the periodic pension
contributions collected from the salaries of Bank's
employees on behalf of an appropriate governmental
organ at Head Office as well as those pension
contributions collected at branches and transferred to
Head Office Accounts.

 It is 7% of basic salary
Graduate Cost Sharing Payable
 This category shall be used to open and summarize
individual accounts to record percentage
deductions collected on the monthly basic salaries
of Bank's employees who have an agreement with
the appropriate governmental organ, since 1996
Ethiopian Calendar, for sharing the costs of staying
in governmental universities.
 It is 10 % of basic salary
Capital

 Capital. Capital generally refers to the amount or resources


invested by the owner in the business.

 In accounting language it is taken to mean excess of assets over


liabilities.

 Capital = Assets – Liabilities.

 The following are the components of capital account for Bank;

 Paid up capital

 Legal Reserve

 Retained Earnings

 Profit and Loss Summary


Paid up Capital

 This category shall be used to open and summarize


individual account when initial capital is paid on
establishment of the Bank and subsequent increments are
made by the owner through additional capital contributions.

Legal Reserve
 This category shall be used to open and summarize legal
reserve contribution made on a yearly basis from the annual
business profit of the Bank according to the prevailing
directive of the NBE. This account is credited when the
legal reserve contributions are made on a yearly basis.
Retained Earning ;

 This category shall be used to open and summarize individual


accounts that record Profit and Loss/ Retained Earnings that
the Bank retains from its annual net profit. This account is
credited when the decision to retain part of the annual profit
is made.

Profit and Loss Summary Account;


 This category shall be used to open and summarize individual
accounts that record Profit and Loss that the Bank retains from
its annual net profit.

 The account shall be zero after the balance is transferred to


head office and respective proration is made at Head office
Profit and Loss Account

 In Bank Profit and Loss Accounts are classified under


two major categories

 Product related heads and

 Non Product Related or Overheads.


Profit and Loss Account

 Product related income or expense result out of


banking products. For example, Interest on Loans,
Commission on LC, and Charges on Different Account
etc.

 Non product related heads are Overheads like, Salaries,


Employee benefits, General Expenses ... Etc

 All the product related Income and Expense are the


major Income and Expense groups of our bank.
Product Related Income
 The Following are the Major Product Related income at
branch Level.

 Interest Income

 Cheque Stop Payment Charges

 Cheque Issue Charges

 Statement Charges

 Commissions on CPO

 Outward Remittances

 Service Charge Collections on Salary Payments


Interest Income

 This category shall be used to open and summanze


all interest income earned from different products.
The system shall automatically raise accounting
entries for interest income based on the given
product.
Journal Entry:
Debit: Customer Account ………..XXX
Credit: Interest Income…………………….XXX
Cheque Stop Payment Charges

 This category shall be used to open and summarize commissions


charged from cheque stop payments.

Journal Entry:

Debit: Customer Account ………..XXX

Credit: Commission from stop payments…………….XXX

 Cheque Issue Charges

This category shall be used to open and summarize commissions


charged from Cheque Issue.

Journal Entry

Debit: Customer Account/Cash/ ………..XXX

Credit: Commission from cheque issue……...XXX


Statement Charges

 This category shall be used to open and summarize


commissions earned from statement charges.

Journal Entry

Debit: Customer Account/ Cash/ ………..XXX

Credit: Commission from Statement charges …….XXX

Outward Remittances
 This category shall be used to open and summarize
commissions charged from outward remittances.
Debit: Customer Account/ Cash ………..XXX
Credit: Commission from Outward Remittances ...XXX
Service Charge Collections on Salary
Payments
 This category shall be used to open and summarize
commissions earned from service charge collections
on salary payments.

Journal Entry

Debit: Customer Account……………..XXX

Credit: Service charge …………………….XXX


Non Product Related Expense
 Major Types of Bank Non Products Related Expense are
classified under the following sub Headings.

 Employee Salaries

 Employee Benefit

 Allowances

 Other Employee Benefit

 General Expense
Employee Salaries

Salaries Expense-Clerical
Salaries Expense-Non Clerical
Salaries Expense-Clerical

 This category shall be used to post monthly gross


salaries paid to permanent clerical employees of the
Bank.

Journal Entry

Debit Salary Expense Clerical …………XXX

Credit: Various Accounts (such as Employees Pension


Contributions

Payable, Income Tax Payable, Inter Branch Accounts or


Staff's account etc.) …………………………………………..XXXX
Salaries Expense-Non Clerical

 This category shall be used to post monthly gross


salaries paid to permanent non clerical employees of
the Bank.

Journal Entry

Debit Salary Expense non Clerical …………XX

Credit: Various Accounts (such as Employees Pension


Contribution Payable, Income Tax Payable, Inter Branch
Accounts or Staff's account etc.)
…………………………………………………..XXXX
Discussion
1. Birr 3,500 paid for the family of a deceased employee to defray the
funeral ceremony
2. Birr 1,200 is paid to Girma Seyoum, which will be used for the branch
staff entertainment
3. Birr 1500 was found as excess of the front office maker Ato Solomon
4. Birr 500 was found as shortage of the front office maker Genet her
indemnity balance is 600
5. Paid 230 and 60 Birr for wage & Transportation to a contract
employee respectively
6. Paid 600 in cash for maintenance of three chairs and two tables
7. Issued C.P.O to Ethio Telecom for birr 1000 being 4 GB usage of the
branch for the month
8. During the month end replenishment of petty cash the branch has
paid Birr 24 for postage and Birr 30 for unloading of currency
respectively
9. Cash difference of shortage for birr 10,000 occurred on one of front
office maker who have indemnity balance of birr 9,000
10. Birr 10,000,000 was paid in advance for five years for Y branch Rent.
Cont…
Debit: Funeral Expense………………………...3500
Credit: Staff A/C /Cash/ …………………….………3500
Debit : Entertainment Expense ……………..1200
Credit: Staff A/C /Cash/ …………………..……………… 1200

Debit : Teller Cash ………………………………1500


Credit A/P Adjustment & Refund …………………………1500

Debit : Genet CIA …………………………………500


Credit: Cash-Teller………………………………………………….500

Debit : Wage………………………………………… 60
Debit : Transport …………………………………. 230
Credit: A/C / Cash/ ……………………………………………… 290
Cont….
Debit: Maintenance & Repair Furniture & Fittings ……....600
Credit: Customer A/C / Cash /CPO………………………………600
Debit: Telephones & Telex Expense ……....1000
Credit: CPO issued ………………….. ………………………………1000
Debit: Postage Expense………………………………….24
Debit: Wage……………………………....................... 30
Credit: Cash Teller………………………………………………………………………………54

Debit: Front Office Maker CIA ……………………..9000


Debit: Adjustment & Refund….........................1000
Credit: Cash-Teller…………………………………………………………………………. 10000

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