Bank Balance Sheet vs Company Balance Sheet

A bank balance sheet preparation is complicated since the banking institutions will need to calculate their net loans, which is time-consuming. The items recorded in this balance sheet are loans, allowances, Short Term Loan etc. In contrast, preparing a company's balance sheet is not that complicated and time-taking, and it records items like assets, liabilities, and net worth. Before we go into the nitty-gritty of the bank's balance sheet and any regular company, first, we need to look into the nature of each.

The bank acts as an intermediary between two parties. The job of a bank is to assist the company in which it can help. Bank makes profits from the spread between the rate it receives and pays.

On the other hand, a company operates to produce goods or services and ultimately sells these goods or services to another business, end customer, or Government. Running a regular company aims to generate and maximize wealth for its shareholders.

As the nature of both of these entities is different, it makes sense to prepare a unique balance sheet for each of them.

The differences between Bank Balance Sheet vs. Company Balance Sheet are as follows –

Bank Balance Sheet is prepared differently from the Company Balance Sheet. The first few items on the Balance Sheet of a Bank are similar to the Balance Sheet of a Regular Company. For example, cash, securities, etc., come under assets on the Bank's Balance Sheet.

Schedules in a Bank Balance Sheet

Schedules are mentioned in a Bank Balance Sheet because schedules refer to additional information. Key schedules that are being used in the bank balance sheets are –

• Deposits
• Borrowings
• Capital
• Reserves & Surpluses
• Cash on hand
• Investments
• Liabilities

Average balance

One of the unique characteristics of the bank balance sheet is that all the balances that take place on the balance sheet are average amounts. Therefore, taking average amounts provides a better idea about the financial affairs of the bank.

However, what separates the bank from the other regular company is that the bank takes more risk than any regular company.

Loans

This is one of the ways banks earn money. Banks provide loans to various customer segments. Two of the basic loans bank offers are personal loans and mortgage loans. Personal loans are given with an interest rate and without any mortgage. Usually, the interest rate remains higher in personal loans.

Mortgage loans are given against a mortgage. As the loans are offered against a mortgage, the interest rate is usually lower. But if the individual cannot pay off the loans, the mortgage is claimed by the bank.

Banks also create an allowance in the balance sheet to cover losses from the loans (if any) and change the structure of this allowance depending on the economic factors going on in the market.

Short term investments

To the banks, short term investments are also of utter importance. That's they include cash, securities under short term investments. These short term investments do three things –

• First, short term investments lower the duration of total assets.
• Second, short term investments also lower the chances of loan default risk.
• And lastly, short term investments also increase liquidity.

ABC Bank Balance Sheet

The balance sheet of a regular company is similar to a simple balance sheet format.

The balance sheet of a regular company will balance two sides – assets and liabilities.

For example, if a company takes a loan from a bank of $50,000, the transaction will take place on the balance sheet in the following manner –

• Firstly, on the "asset" side, we will include "Cash" of $50,000.
• Secondly, on the "liability" side, we will include "Debt" of $50,000.

For one transaction, there are two consequences, and the balance sheet balances these two.

Let's now understand "assets" and "liabilities."

Assets

Under "assets," first, we will talk about "current assets." Current assets are assets that can be liquidated quickly in cash. Here are the items that come under current assets –

• Cash & Cash Equivalents
• Short-term investments
• Inventories
• Trade & Other Receivables
• Prepayments & Accrued Income
• Derivative Assets
• Current Income Tax Assets
• Assets Held for Sale
• Foreign Currency
• Prepaid Expenses

Here's an example for you –

Now, let's talk about "non-current assets."

Non-current assets are also called fixed assets. They will pay you off for more than one year, and they can't easily be liquidated.

Under "non-current assets," we would include the following items –

• Property, plant, and equipment
• Goodwill
• Intangible assets
• Investments in associates & joint ventures
• Financial assets
• Employee benefits assets
• Deferred tax assets

If we add both current and noncurrent assets, we will get the total assets of a regular company.

Liabilities

In Liabilities also, we will start with "current liabilities."

Current liabilities are liabilities that can be paid in a very short duration. Here are the items that we would include under current liabilities –

• Financial Debt (Short term)
• Trade & Other Payables
• Provisions
• Accruals & Deferred Income
• Current Income Tax Liabilities
• Derivative Liabilities
• Accounts Payable
• Sales Taxes Payable
• Interests Payable
• Short Term Loan
• Current maturities of long term debt
• Customer deposits in advance
• Liabilities directly associated with assets held for sale

Now we will look at an example of current liabilities –

We will now have a look at the "non-current liabilities." These liabilities are long term liabilities, which the company will pay off within a long period of time.

In "non-current liabilities," we will include the following –

• Financial Debt (Long term)
• Provisions
• Employee Benefits Liabilities
• Deferred Tax Liabilities
• Other Payables

By adding the "current liabilities" and "non-current liabilities," we will get "total liabilities."

To complete the balance sheet of a regular company, we have only one thing left. And that is "shareholders' equity."

Shareholders' Equity

Shareholders' equity is the statement that includes that share capital and all other related adjustments. Here's a format of shareholders' equity –

If we add total liabilities and shareholders' equity, we will get a number that should match the total assets.

Now we will look at the format and example of the balance sheet of a regular company.

Format & example of the balance sheet of a regular company

Balance Sheet of ABC Company

The differences between Bank Balance Sheet vs. Company Balance Sheet are as follows –

• The bank's balance sheet is quite different from the Balance Sheet of a Regular Company in the approach of preparation. Both are prepared quite differently.
• The assets and liabilities of a bank are much different from a regular company's assets and liabilities. That's why even if the arrangement of the bank and a regular company is similar, the items are always different.
• In the banks' balance sheet, the average balances are summed up and recorded. It gives a better framework for the financial performance of the banks. On the other hand, the balance sheet of a regular company takes the ending balance from the trial balance. Trial balance is prepared from the ledger accounts. And then, from trail balance, the ending balance is transferred to the balance sheet of a regular company.
• To show new information, the bank's balance used "schedules." On the other hand, to show new information, a balance sheet of a regular company uses "notes."
• To prepare a balance sheet for a bank, an accountant has to go through a lot of information. S/he needs to look through the short-term investments of the banks, the loans (personal & mortgage), deposits, interest paid & received, etc. That's why preparing the balance sheet of a bank is quite cumbersome. On the other hand, preparing the balance sheet of a regular company is pretty easy. All you need to do is find out current assets, fixed assets, current liabilities, non-current liabilities, and shareholders' equity. And you would be able to prepare the balance sheet easily.
• Banks take more risks than any other company. That's why in the bank's balance sheet, a separate provision (allowance) is created to cover the losses on loans. There Are provisions for bad debts or creditors in the balance sheet of a regular company, but they are not similar to allowance created in the bank's balance sheet.
• Many economic factors affect the balance sheet of a bank. But in the case of a regular company, rarely external events affect the preparation of the balance sheet.

Also, check out the Balance Sheet vs. Consolidated Balance Sheet

If you look at a balance sheet of a regular company, you will have a surface-level idea about how a balance sheet works. For example, the bank's balance sheet is arranged similarly, but the items under the heads are different.

Moreover, banks use the average balance for their balance sheets, which is unique if we compare it with the regular company operations.

Even if these balance sheets are quite different in scope, the objective of both of them is quite similar, i.e., to disclose an accurate picture of the organization's financial affairs.

This has been a guide to Bank Balance Sheet vs. Company Balance Sheet. Here we discuss the top difference between bank balance sheets and company balance sheets, infographics, and a comparison table. You may also have a look at the following articles –

• Balance Sheet Formula
• Examples of Deferred Tax Assets
• Balance Sheet Equation Definition