Q.Draw up the specimen (simplified) form of the balance sheet of a commercial bank and explain its main items.

A bank's balance sheet, at a given date, sets its liabilities (what it owes) against its assets (what it owns and is owed), with assets arranged from most liquid to least liquid.

A commercial bank's balance sheet is a statement at a particular date showing its liabilities (claims of others against it) and its assets (its own resources and claims it holds against others). A simplified specimen is:

Main items explained:

• Deposits — usually the largest liability, being the public's money that must be repaid, yet the chief source of the bank's working funds.
• Share capital and reserves — the owners' stake, a cushion that absorbs losses and protects depositors.
• Cash in hand and balances with the central bank — the most liquid assets, earning little but held to meet withdrawals and legal reserve requirements.
• Money at call and short notice, and bills discounted — highly liquid earning assets, convertible to cash quickly.
• Investments — government and other securities, giving a safe, steady return and saleable when cash is needed. …

A very common error is to put deposits on the assets side — deposits are a liability because the bank must repay them. Equally, loans and advances are assets (money owed to the bank), not liabi …