How to Prepare for Accounting and Finance for Banking – AFB

How to prepare accounting and finance

How to prepare for accounting and Finance for banking? This is a most common question asked by a banking person who is going to appear in the exam of JAIIB. But the thing is why? Why we think that accounting and Finance for banking is it difficult subject in this exam because some of us from are non commerce background.

So now when the exam dates are declared and we have schedule that when they are going to be held on. We must a fix a schedule about studying so that we could clear the exam in one attempt.

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So in this series of the articles by learning sessions we will make efforts so that you could study in a much better way and convenient way so that we could achieve our goal.

Let’s start

So there are three papers in the exam of JAIIB certification.
The first exam is principles and practices of Banking
Second one is accounting and Finance for banking
Third one is legal and regulatory aspects of Banking

So first of all we will prepare for accounting and Finance for bank because we think it is difficult but actually that is not the truth. We have to prepare for all three papers in 45 days or one and half month you can say. And we will study one hour a day not more than that

Important Topic:- AFB SYLLABUS PRIORITY AFB 

Day 1 for Accounting & Finance for Banking

Paper 1 – accounting and Finance for banking
We will start with module B that is principles of bookkeeping and accountancy.

Book-keeping – Book Keeping is an art of recording, classifying and summarizing financial
transactions in a systematic manner in a particular financial year.

Accountancy Accountancy is a wider term. It includes analysis and interpretation besides book-keeping. Book-keeping is limited to recording, classifying and summarizing the financial transactions

Steps

1. Recording in a book called Journal Entry
2. Classifying in a book called Ledger Posting
3. Summarizing on a format called Trial Balance
4. Preparation of Final Statements called Profit and Loss Account and Balance Sheet.
5. Analysis and Interpretation the results thereof through Ratio Analysis, Cash Flow Analysis etc.

Branches of Accounting
1. Stewardship Accounting: In the earlier days, rich people used to appoint, ”Stewards” to manage their property. The accounting practices used by them to present their financial matters, is called Stewardship Accounting.
2. Financial Accounting: Recording of Financial transactions in a systematic manner in the books of accounts, summarizing in the form of Trial Balance and presenting the results thereof is called Financial accounting. Previously Single Entry concept was prevalent in which only one aspect of transaction was recorded. Later on , Double Entry concept was introduced in which two aspects of each transaction are recorded.
3. Cost Accountancy: This is the process of ascertaining cost of each unit, each department and each process. Steps are taken to curtail cost, make the product market worthy and increase profits.
4. Management Accountancy: It contains tools and techniques to analyze the financial results and interpret them in a meaningful manner so that planning can be made and budgets can be prepared. Ratio Analysis, Cash Flow, Fund Flow, Capital Budgeting etc. come under purview of Management accounting.

BASIC ACCOUNTING PROCEDURE
Double Entry System
Double entry book keeping means that each debit in an account will have a matching credit to another account. For proper recording the transaction, the knowledge of the rules of ‘Debit’ and ‘Credit’ is essential. When to debit and when to credit depends upon the nature of transaction.
In order to keep full record of transactions, the business must keep:
i) The account of each person or firm with whom it deals;
ii) The account of each property in the business; and
iii) The account of each head of expense or income.

What are the Three Types of Accounts?

Real, Personal and Nominal Accounts

There are mainly three types of accounts in accounting: Real, Personal and Nominal accounts, personal accounts are classified into three subcategories: Artificial, Natural, and Representative.

If you fail to identify an account correctly as either a real, personal or nominal account, in most cases, you will get end up recording incorrect journal entries.

1. Real Accounts

All assets of a firm, which are tangible or intangible, fall under the category “Real Accounts.

Tangible real accounts are related to things that can be touched and felt physically. Few examples of tangible real accounts are building, machinery, stock, land, etc.

Intangible real accounts are related to things that can’t be touched and felt physically. Few examples of such real accounts are goodwill, patents, trademarks, etc.

Golden rule for real accounts
 Debit what comes in
 Credit what goes out

 

Example

The transaction below shows the interaction of two different real accounts: one is furniture and the other is cash, both of them are assets of the company and hence classified as real accounts.

  • Purchased furniture for 10,000 in cash
Accounts Involved Debit/Credit Rule Applied
Furniture A/C Debit Real A/C – Dr. what comes in
To Cash A/C Credit Real A/C – Cr. what goes out

*Amount will be 10,000 in both debit and credit.

2. Personal Accounts

These accounts are related to individuals, firms, companies, etc. A few examples of personal accounts include debtors, creditors, banks, outstanding/prepaid accounts, accounts of credit customers, accounts of goods suppliers, capital, drawings, etc.

Natural personal accounts:  This type of personal accounts is the simplest to understand out of all and includes all of God’s creations who have the ability to deal, who, in most cases, are people. E.g. Kumar’s A/C, Adam’s A/C, etc.

Artificial personal accounts: Personal accounts which are created artificially by law, such as corporate bodies and institutions, are called Artificial personal accounts. E.g. Pvt Ltd companies, LLCs, LLPs, clubs, schools, etc.

Representative personal accounts: Accounts which represent a certain person or a group directly or indirectly. E.g. Let’s say that wages are paid in advance to an employee – a wage prepaid account will be opened in the books of accounts. This wages prepaid account is a representative personal account indirectly linked to the person.

There are four types of Representative Personal Accounts:
 Pre-paid Expenses
 Outstanding Expenses
 Accrued Income and
 Income Received in Advance

Golden rule for personal accounts
 Debit the receiver
 Credit the giver

 

Example

The transaction below demonstrates the interaction between two different personal accounts, one of which is a private limited company and the other one is a bank.

  • Paid Unreal Pvt Ltd. 24,000 by check
Accounts Involved Debit/Credit Rule Applied
Unreal Pvt Ltd. A/C  Debit Artificial Personal – Dr. the receiver
To Bank A/C  Credit Artificial Personal – Cr. the giver

*Amount will be 24,000 in both debit and credit. 

3. Nominal Accounts

Accounts which are related to expenses, losses, incomes or gains are called Nominal accounts. The dictionary meaning of the word “nominal” is “existing in name only” and the meaning remains absolutely true in accounting sense too, because nominal accounts do not really exist in physical form, but behind every nominal account money is involved. E.g. Purchase A/C, Salary A/C, Sales A/C, Commission received A/C, etc.

The final result of all nominal accounts is either profit or loss which is then transferred to the capital account.

Golden rule for nominal accounts
 Debit all expenses & losses
 Credit all incomes & gains

 

Example

The following example shows a transaction where a nominal account deals with a real a/c.

  • Purchased good for 15,000 in cash
Accounts Involved Debit/Credit Rule Applied
Purchase A/C Debit  Nominal A/C – Dr. all expenses
To Cash A/C Credit  Real A/C – Cr. what goes out

The amount will be 15,000 in both debit and credit.

Go to DAY 2

Accounting & Finance for Banking

Principles & Practices of Banking Module E Pdf

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Module E PPB ePDFs available in our android app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

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Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

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