Bank Accounting Traning Material 2017

Bank
Accounting
Training manual
Prepared By Bethel Wossene

February 2017
Addis Ababa
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CHAPTER ONE.............................................................................................................................................6
Introduction................................................................................................................................................6
1.1 Impacts............................................................................................................................................6
1.2 Objective of the training..................................................................................................................7
1.2.1 General Objective....................................................................................................................7
1.2.2 Specific Objective.....................................................................................................................7
CHAPTER TWO............................................................................................................................................8
Basic Terminologies....................................................................................................................................8
2.1 What is accounting?....................................................................................................................8
2.2 Double entry accounting..............................................................................................................9
2.3 Bank.............................................................................................................................................9
2.4 Minimum Paid-up Capital............................................................................................................9
2.5 Bank Account.............................................................................................................................10
2.6 Accounting Information System.................................................................................................10
2.7 Accounting equation..................................................................................................................10
2.8 Economic events........................................................................................................................11
2.9 Principles and Rules...................................................................................................................11
2.10 IFRS Definition for “Assets”........................................................................................................12
2.11 IFRS Definition for “Liability”.....................................................................................................13
2.12 IFRS Definition for “Shareholder’s equity”.................................................................................13
2.13 Basic Accounting Principles and Guidelines...............................................................................13
CHAPTER THREE........................................................................................................................................16
Chart of Accounts......................................................................................................................................16
3.1 Definition and Structure of chart of account.............................................................................16
3.2 Structure of chart of account.....................................................................................................16
3.3 Abay Bank Chart of Account......................................................................................................17
CHAPTER FOUR.........................................................................................................................................31
Chart of accounts......................................................................................................................................31
4.1 Cash...........................................................................................................................................31
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4.2 Deposits with other banks.........................................................................................................33
4.3 NBE Deposits.............................................................................................................................33
4.4 Foreign Bank Deposits...............................................................................................................34
4.5 Short term Investments.............................................................................................................35
4.6 Long term Investments..............................................................................................................36
4.7 Suspense accounts.....................................................................................................................36
4.7.1 Sundry Debtor....................................................................................................................36
4.7.2 Supplies stock....................................................................................................................41
4.7.3 Un-cleared Effects Local.....................................................................................................42
4.7.4 Un-cleared Effects Foreign.................................................................................................46
4.7.5 Prepayments......................................................................................................................48
4.7.6 Assets awaiting for resale..................................................................................................49
4.7.7 Accrued interest receivables..............................................................................................50
4.7.8 Deferred Charges...............................................................................................................51
4.8 Loans and advances...................................................................................................................51
4.8.1 Lending..............................................................................................................................52
4.8.2 Sound Principles of Lending:..............................................................................................53
4.8.3 Credit Investigation:...........................................................................................................53
4.8.4 Credit Report Analysis:.......................................................................................................56
4.8.5 Factors to be considered for Portfolio Distribution............................................................58
4.9 Property, Plant and Equipment (Fixed assets)...........................................................................60
4.9.1 Cost comprises:..................................................................................................................61
4.9.2 Depreciation:.....................................................................................................................61
4.9.3 Cause of Depreciation........................................................................................................61
4.9.4 Residual value....................................................................................................................61
4.10 Inter Branch Accounts...............................................................................................................64
4.11 Liability......................................................................................................................................66
4.11.1 Deposits.............................................................................................................................66
4.11.2 Saving Deposits..................................................................................................................67
4.11.3 Fixed Time Deposits...........................................................................................................67
4.11.4 Accrued interest payable on Deposits...............................................................................67
4.12 Sundry Creditors........................................................................................................................68
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4.13 Foreign Trade Services...............................................................................................................81
4.13.1 Letter of Credit...................................................................................................................81
4.13.2 Advance Payment..............................................................................................................81
4.13.3 Consignment basis Payment..............................................................................................81
4.13.4 Guarantee..........................................................................................................................81
4.13.5 Eligibility Criterions............................................................................................................82
4.13.6 Governing Rules.................................................................................................................82
4.13.7 Documentary Credit Import L/C Issuance..........................................................................82
4.13.8 Import L/C Amendment.....................................................................................................84
4.13.9 Issuance of Shipping Guarantee under Import L/C............................................................85
4.13.10 Import L/C Settlement...................................................................................................86
4.13.11 Export.............................................................................................................................88
4.13.12 Advance of Export L/C....................................................................................................89
4.13.13 Export L/C Amendment..................................................................................................89
4.14 NBE Intermediary GL.................................................................................................................93
4.15 Borrowing..................................................................................................................................95
4.16 EQUITY.......................................................................................................................................96
4.17 Income Accounts.......................................................................................................................99
4.18 Expenses Accounts...................................................................................................................110
4.19 Contingent accounts................................................................................................................120
CHAPTER FIVE.........................................................................................................................................121
Transaction Processing...........................................................................................................................121
5.1 Accounting Transaction...........................................................................................................121
5.2 KYC (Know Your Customer)......................................................................................................121
5.3 Analyzing Business Transactions..............................................................................................122
5.4 Three Basic accounting processes............................................................................................122
5.5 Source Document....................................................................................................................123
5.6 AML-Anti Money Laundering...................................................................................................123
CHAPTER SIX...........................................................................................................................................125
Management of Suspense Accounts......................................................................................................125
6.1 Settlement of Suspense Accounts.......................................................................................126
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6.2 Impacts of unsettled Suspense accounts in financial statements....................................127
6.3 Users of Financial statements..............................................................................................128
6.4 Reliability of Financial statements......................................................................................129
6.5 Accuracy of Financial statements........................................................................................130
6.6 Common mistakes in financial statements........................................................................131
6.7 Reporting of Suspense Accounts........................................................................................132
6.8 Team Sprit..............................................................................................................................133
CHAPTER SEVEN......................................................................................................................................134
IFRS versus US GAAP...............................................................................................................................134
7.1 Objectives...............................................................................................................................134
7.2 Principles- vs. Rules-based Standards................................................................................134
7.3 Timing and measurement of revenue recognition............................................................134
7.4 Cash and Internal Controls..................................................................................................134
7.5 Internal controls:...................................................................................................................134
7.6 Receivables............................................................................................................................134
7.7 Inventory................................................................................................................................135
7.8 Long-Term Assets.................................................................................................................135
7.9 Valuation of Intangible assets.............................................................................................135
7.10 Current Liabilities.................................................................................................................135
7.11 Long-Term Liabilities...........................................................................................................135
7.12 Stockholders’ Equity.............................................................................................................136
7.13 Statement of Cash Flows......................................................................................................136
7.14 Discontinued operations......................................................................................................136
7.15 Extraordinary items..............................................................................................................136
References..............................................................................................................................................137
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CHAPTER ONE
Introduction
Banking operation requires relevant and reliable financial information for making appropriate
and timely economic and financial decisions. This could be achieved by installing proper bank
accounting system which consists of financial and managerial accounting elements such as rules
and regulation, asset-liability management and etc…
Lack of sound and uniform accounting procedures, therefore, the greater focus should be given
to organize training sessions on sound bank accounting system for the bank staffs.
This will assists staffs to contribute for the institutional development of the banks. For
managing banking operations it is very important to organize massive training and retraining
programs.
This course is thus designed to equip trainees with adequate knowledge of bank accounting,
which is central element in the banking industry in order to avoid the following impacts from
the bank’s book of accounts.
1.1 Impacts
 Fraud can be made using outstanding these suspense accounts

 The normal operation of the bank will be affected
 The accuracy of the financial statement will be undermined
 The bank and its customers relation will become unstable
 Require the bank to hold provisions from the benefit of share holders
In addition, the following selected general and specific objectives are the main target that it has
to be addressed in this “bank accounting” training manual.
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1.2 Objective of the training
1.2.1 General Objective
The general objective of this training is to introduce participants with bank accounting. At the
end of the training, participants are expected to be able to
 Understand the content of the general ledger and subsidiary ledgers,

 Know the concepts of suspense account and the need to follow,
 Clearly understand closing of accounts and
 Know the importance of reconciliation
1.2.2 Specific Objective
 To make aware participants of the chart of accounts of the bank

 To introduce the bank accounting manual
 To know journal entries
 To show how credit summaries are flow one end to the other
 To show how credit suspense accounts are created, handled and cleared
 To explain purpose of reconciliation
 To familiarized the current used accounting practices
 T serve as a significant tool for banking career
 To help employees to handle day-to-day activities efficiently and effectively
 In order to ensure uniformity
In this training manual, it addresses major parts of the bank loans or Credit and foreign trade
activities especially recurring part of Letter of credit, and import-export related transactions.
Finally,
It is believed that at the end of this training the trainees are expected to have sufficient
knowledge about the bank accounting, its chart of account, journalizing, Credit summary flows,
part loan and foreign banking activities practices and entries.
The writer believes that this training manual applies to all those staffs working in customer
handling, auditors, tellers or any staff accessing financial matters or operations having an
experience of zero years to branch accountants.
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CHAPTER TWO
Basic Terminologies
2.1 What is accounting?
Accounting is the analysis & interpretation of book keeping records. It includes not only the
maintenance of accounting records but also the preparation of financial & economic
information which involves the measurement of transactions & other events relating to entry.
Analysis:
Investigation of component parts and their relation or Separation of the whole into various
parts (Analytic thinking).
Interpretation:
It is representation of the meaning or Explanation of the results.
Account is a record of financial transactions; usually refers to a specific a record in the General
Ledger that is used to collect and store debit and credit amounts.
Accounting is Practice or knowledge concerned primarily with

1. Methods for recording transactions,
2. Keeping financial records,
3. Performing internal audits,
4. Reporting & analyzing Financial information to the management, and
5. Advising on taxation matters.
Accounting used as:

 A Career: One’s life work
 Business management: Determine and quantify the business profitability
 Business language: every one engaged in business activity uses this language
 Everyday life: Every responsible adult concerned with financial aspects
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2.2 Double entry accounting
A business’s transactions can be analyzed by using the double-entry accounting system, which
recognizes the different sides of business transactions as debits and credits.
In accounting,
Debit is an entry on the left side of a double-entry bookkeeping system that represents the
addition of an asset or expense or the reduction to a liability or revenue. Debit is the positive
side of a balance sheet account. The opposite of a credit is a debit. Debit Accounts are Assets
and Expenses. Credit accounts are Revenue, Equity and Liabilities. The bank debits a debit
account to increase its balance, and credits a debit account to decrease its balance.
In accounting,
Credit is the negative side of a balance sheet account that represents the addition of liability or
revenue or a reduction of an asset or expense. Credit accounts are Revenue, Equity and
Liabilities. Debit Accounts are Assets and Expenses. The bank credits a credit account to
increase its balance, and debits a credit account to decrease its balance.
2.3 Bank
It is an establishment authorized by a government to accept deposits, pay interest, clear checks,

make loans, act as an intermediary in financial transactions, and provide other financial services
to its customers.
In addition to other regulations Banks are intended to ensure liquidity, and are generally
subject to minimum capital requirements.
2.4 Minimum Paid-up Capital
The minimum paid up capital required to obtain a banking business license shall be Birr 2
billion, which shall be fully paid in cash and deposited in a bank in the name and to the account
of the bank under establishment. Existing banks whose paid up capital is below Birr 2 billion
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shall raise their paid-up capital to the said amount by June 30, 2016. It is already reached by all
banks in the country.
2.5 Bank Account
It is a financial account maintained by a financial institution for a customer. It can be a deposit

account, a credit card account, or any other type of account offered by a financial institution, and
represents the funds that a customer has entrusted to the financial institution and from which
the customer can make withdrawals. Alternatively, accounts may be loan accounts in which
case the customer owes money to the financial institution. Most of financial institutes hold such
accounts using Accounting Information System.
2.6 Accounting Information System
It is the system of records a business keeps maintaining its accounting system. AIS is responsible
for providing timely and accurate financial and statistical reports for internal management decision
making, and for external parties such as creditors, investors, and regulatory and taxation
authorities.
Most businesses now use accounting software which is an electronic financial accounting
system.
2.7 Accounting equation
Accounting equation is the process used to capture the effect of economic events;
Assets = Liabilities + Owner’s Equity
It shows the balance of a company’s resources (those which are displayed on the balance
sheet).
It is easy to show that all of a company’s resources (assets) are provided by their creditors or
their owners (liabilities and equity).
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2.8 Economic events
The economic events are recognized in their accounts by matching revenues to expenses ( the
matching principle) at the time in which the transaction occurs (as opposed to when the payment
is made or received). It depends on the method we used.
1. General:
Transaction is an agreement, contract, exchange, understanding, or transfer of cash or property
that occurs between two or more parties and establishes a legal obligation. Also, it is called
booking or reservation.
2. Accounting:
Transaction is an event that effects a change in the asset, liability, or net worth account.
Transactions are recorded first in journal and then posted to a ledger.
3. Banking:
Transaction is an activity affecting a bank account and performed by the account holder or at
his or her request.
4. Commerce:
Transaction is exchange of goods or services between a buyer and a seller. Every transaction
has three components:
(1) Transfer of good/service and money,
(2) Transfer of title which may or may not be accompanied by a transfer of possession, and
(3) Transfer of exchange rights.
2.9 Principles and Rules
There are many principles, Rules and Regulations that directs and controls the recording of
business transactions. And, in this regards, accounting records depends on these rules. The two
pillars are General Accepted Accounting Principles (GAAP) and International Financial Reporting
Standards.
GAAP is a rule based recording and reporting system. Generally Accepted Accounting Principles
are widely accepted set of rules, conventions, standards, and procedures for reporting financial
information, as established by the Financial Accounting Standards Board (FASB).
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IFRS is a principle based recording and reporting system. IFRS is a set of accounting standards,
used worldwide, for how different kinds of transactions should be recorded in balance sheets
and general ledgers. The Accounting Standards Board publishes and updates the International
Financial Reporting Standards, in an effort to standardize accepted accounting practices across
international boundaries.
There are many similarities in US GAAP and IFRS guidance on financial statement presentation.
Under both frameworks, the components of a complete set of financial statements include:
balance sheet, income statement, other comprehensive income, cash flows and notes to the
financial statements.
Both US GAAP and IFRS also require that the financial statements be prepared on the accrual
basis of accounting (with the exception of the cash flow statement) except for rare
circumstances.
Both sets of standards have similar concepts regarding materiality and consistency that entities
have to consider in preparing their financial statements. Differences between the two sets of
standards tend to arise in the level of specific guidance provided.
Also, all the way of recording or reporting or considering of incomes and provisions are guided
the country tax law, directives of the National Bank and internal rules and procedures of the
bank.
In this training manual is prepared on the basis and definition given by IFRS.
2.10 IFRS Definition for “Assets”
An asset is defined as:

• a resource controlled by the entity as a result of a past event from which future
economic benefits are expected to flow to the entity
An asset is recognised when:

• it is probable that any future economic benefit associated with the item will flow to the
entity; and
• The item has a cost or value that can be measured with reliability.
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2.11 IFRS Definition for “Liability”
A liability is defined as a:
• present obligation arising from a past event and the settlement of which is expected to
lead to an outflow of future economic benefits from the entity
A liability is recognised when:

• it is probable that any future economic benefit associated with the item will flow from
the entity; and
• The item has a value that can be measured with reliability.
2.12 IFRS Definition for “Shareholder’s equity”
Shareholders' equity represents the interest of a company's shareholders in the net assets of the
company. It equals the excess of a company's total assets over its total liabilities.
The above accounts in the chart of the account can be used in the normal operation process of the bank
as:
1. Domestic banking services
a. Normal bank services
b. Credit services
2. International banking services
a. Forex bureau services
b. International trade services
3. Islamic banking services
4. Agent banking services
5. E-banking services
2.13 Basic Accounting Principles and Guidelines
The following is a list of the ten main accounting principles and guidelines together with a highly
condensed explanation of each.
1. Economic Entity Assumption
The accountant keeps all of the business transactions of a sole proprietorship separate from the
business owner's personal transactions. For legal purposes, a sole proprietorship and its owner are
considered to be one entity, but for accounting purposes they are considered to be two separate
entities.
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2. Monetary Unit Assumption
Economic activity is measured in currency, and only transactions that can be expressed in currency are
recorded.
3. Time Period Assumption
This accounting principle assumes that it is possible to report the complex and ongoing activities of a
business in relatively short, distinct time intervals.
It is imperative that the time interval (or period of time) be shown in the heading of each income
statement, statement of stockholders' equity, and statement of cash flows.
4. Cost Principle
From an accountant's point of view, the term "cost" refers to the amount spent (cash or the cash
equivalent) when an item was originally obtained, whether that purchase happened last year or thirty
years ago. For this reason, the amounts shown on financial statements are referred to as historical cost
amounts.
Because of this accounting principle asset amounts are not adjusted upward for inflation. In fact, as a
general rule, asset amounts are not adjusted to reflect any type of increase in value. Hence, an asset
amount does not reflect the amount of money a company would receive if it were to sell the asset at
today's market value. (An exception is certain investments in stocks and bonds that are actively traded
on a stock exchange.) If you want to know the current value of a company's long-term assets, you will
not get this information from a company's financial statements–you need to look elsewhere, perhaps to
a third-party appraiser.
5. Full Disclosure Principle
If certain information is important to an investor or lender using the financial statements, that
information should be disclosed within the statement or in the notes to the statement. It is because of
this basic accounting principle that numerous pages of "footnotes" are often attached to financial
statements.
As an example, let's say a company is named in a lawsuit that demands a significant amount of money.
A company usually lists its significant accounting policies as the first note to its financial statements.
6. Going Concern Principle
This accounting principle assumes that a company will continue to exist long enough to carry out its
objectives and commitments and will not liquidate in the foreseeable future. If the company's financial
situation is such that the accountant believes the company will not be able to continue on, the
accountant is required to disclose this assessment.
The going concern principle allows the company to defer some of its prepaid expenses until future
accounting periods.
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7. Matching Principle
This accounting principle requires companies to use the accrual basis of accounting. The matching
principle requires that expenses be matched with revenues
8. Revenue Recognition Principle
Under the accrual basis of accounting (as opposed to the cash basis of accounting), revenues are
recognized as soon as a product has been sold or a service has been performed, regardless of when the
money is actually received.
9. Materiality
Because of this basic accounting principle or guideline, an accountant might be allowed to violate
another accounting principle if an amount is insignificant. Professional judgment is needed to decide
whether an amount is insignificant or immaterial.
Because of materiality, financial statements usually show amounts rounded to the nearest dollar, to the
nearest thousand, or to the nearest million dollars depending on the size of the company.
10. Conservatism
If a situation arises where there are two acceptable alternatives for reporting an item, conservatism
directs the accountant to choose the alternative that will result in less net income and/or less asset
amount. Conservatism helps the accountant to "break a tie." It does not direct accountants to be
conservative. Accountants are expected to be unbiased and objective.
The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but it
does not allow a similar action for gains.
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CHAPTER THREE
Chart of Accounts
3.1 Definition and Structure of chart of account
The chart of accounts is a listing of all accounts used in the general ledger of an organization.
The chart is used by the accounting software to aggregate information into an entity's financial
statements. The chart is usually sorted in order by account number, to ease the task of locating
specific accounts. The accounts are usually numeric, but can also be alphabetic or
alphanumeric.
Accounts are usually listed in order of their appearance in the financial statements, starting
with the balance sheet and continuing with the income statement. Thus, the chart of accounts
begins with cash, proceeds through liabilities and shareholders' equity, and then continues with
accounts for revenues and then expenses. Many organizations structure their chart of accounts
so that expense information is separately compiled by department; thus, the sales department,
engineering department, and accounting department all have the same set of expense
accounts.
3.2 Structure of chart of account
The structure of the chart of Accounts has seven digits classes of accounts. The classification
structure is hierarchical and uses a digital numerical code to identify individual account.
The second digit represents the Business class: for instance, if the second digit is`0`, the
businesses class is Conventional & if the second digit`1`, the business class is Interest free.
The first digit represents the account class:
 1 0 00000---Assets
 2 0 00000--- Liability
 3 0 00000--- Capital
 4 0 00000--- Income
 5 0 00000--- Expense
 6 0 00000--- Contingent Assets
 7 0 00000--- Contingent Liability
3.3 Abay Bank Chart of Account
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1000000 ASSET
1010000 CASH
1010100 CASH ON HAND
1010101 Cash - Local Currency
1010104 Cash - Imprest Fund
1010107 Cash - Foreign Currency
1010110 Cash -ATM1
1020000 DEPOSITS WITH OTHER BANK

1020100 COMMERCIAL BANKS
1020101 Commercial Bank of Ethiopia
1020200 NBE DEPOSITS

1020201 Statutory Reserve with NBE
1020204 Payment and Settlement Account
1020207 Issue Account
1020300 FOREIGN BANK DEPOSITS

1020301 Nostro - Commerz Banks
1020302 Nostro - Deutsche Banks
1030000 INVESTMENTS
1030100 SHORT TERM INVESTMENT
1030101 Treasury Bills
1030200 LONG TERM INVESTMENT

1030201 Equity Investment
1030204 Government Bond
1030205 Fixed Time Deposit with banks
1030206 National Bank of Ethiopia Bills
1030207 Local Shares
1040000 SUSPENSE ACCOUNTS

1040100 SUNDRY DEBTORS
1040101 Adjustment & Refund receivable
1040104 Advance on Salary
1040105 Advance payments
1040107 Advance payment for Master Card Contract
1040110 Receivable from Branches under Establishment
1040113 Deposits for Light and Water
1040116 Receivable from Head Office & Branches
1040119 Insurance Receivable
1040120 Telephone Receivable
1040122 Leave Pay Receivable
1040123 Janitorial Receivable
1040124 Security Receivable
1040128 Miscellaneous - Foreign Currency
1040131 Miscellaneous - Local Currency
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1040134 Receivable from NBE
1040137 Revenue Stamps on Hand
1040143 Staff receivable
1040146 Cheque Book Stock Account
1040149 Other Receivables
1040152 Withholding Tax receivable
1040155 Value Added Tax receivable
1040200 SUPPLIES STOCK

1040201 Central Stationary Stock
1040204 Office and Other Equipment Stock
1040207 Furniture & Fittings Stock
1040208 Computer & Software Stock
1040210 Negotiable Instruments Stock
1040211 Time deposit format Stock
1040213 Revenue Stamp Stock
1040216 Bank Forms Stock
1040219 Pass Book Stock
1040222 Uniform Stock
1040225 Stock Accounts - Others
1040300 UNCLEARED EFFECTS - LOCAL

1040301 Blocking Outwards Cheques
1040304 Blocking Outwards Savings
1040310 Cash in Transit - Foreign Currency
1040313 Cash in Transit - Local Currency
1040316 Claims on Head Office and Branches
1040319 Cashiers Payment Orders Paid
1040331 Telegraphic Transfers Received
1040335 NBE Debit Intermediary GL
1040336 GL Posting
1040337 Eth-switch receivable
1040400 UNCLEARED EFFECTS - FOREIGN

1040401 Outward Documentary Bills Purchased (ODBP)
1040404 Outward Bills Purchased (OBP)
1040407 MTs, TTs & Drafts Received
1040408 UE money gram paid
1040409 UE western union paid
1040410 UE Express paid
1040411 UE Dahabshil paid
1040412 UE Trans-fast paid
1040413 UE Irman International
1040414 RIA Money Transfer
1040415 Amal Express
1040500 PREPAYMENTS
1040501 Prepaid Rent
1040502 Prepaid Insurance-Vehicles
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1040503 Prepaid Insurance-Life
1040504 Prepaid Insurance-Money
1040507 Prepaid Advertisement & Publicity
1040508 Construction In Progress
1040510 Other Prepayments
1040600 ASSETS AWAITING FOR RESALE

1040601 Vehicle
1040604 Buildings
1040700 ACCRRUED INTEREST RECEIVABLE

1040702 Penalty Interest Receivable on Loans & Advances
1040704 Interest Receivable on Treasury Bills
1040706 Interest Receivable on NBE Bills
1040707 Interest Receivable on Government Bonds
1040710 Interest Receivable on Deposit with Domestic Banks
1040713 Interest Receivable on Deposit with Correspondent Banks
1040714 Interest Receivable on Overdraft
1040716 Dividend Receivable
1040717 Accrued Interest receivable on agricultural production - Term loan
1040718 Accrued Interest receivable on agricultural production - Overdraft
1040719 Accrued Interest receivable on Building & construction - Term loan
1040720 Accrued Interest receivable on Building & construction - Overdraft
1040721 Accrued Interest receivable on Domestic trade & service - Term loan
1040722 Accrued Interest receivable on Domestic trade & service - Overdraft
1040723 Accrued Interest receivable on Export - Term loan
1040724 Accrued Interest receivable on Export - Overdraft
1040725 Accrued Interest receivable on Import - Term loan
1040726 Accrued Interest receivable on Import - Overdraft
1040727 Accrued Interest receivable on Manufacturing production - Term loan
1040800 DEFERRED CHARGES

1040801 Prepaid for Lease
1040804 Organization Costs
1050000 LOANS AND ADVANCES

1050100 LOANS AND ADVANCES SHORT TERM
1050101 Agricultural Production - Term Loan
1050104 Agricultural Production - Over Draft
1050107 Building & Construction - Term Loan
1050110 Building & Construction - Over Draft
1050113 Domestic Trade and Service - Term Loan
1050116 Domestic Trade and Service - Over Draft
1050119 Export - Term Loan
1050122 Export - Over Draft
1050125 Import - Term Loan
1050128 Import - Over Draft
1050131 Manufacturing Production - Term Loan
1050134 Manufacturing Production - Over Draft
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1050135 Hotel & Tourism - Term Loan
1050136 Hotel & Tourism - Over Draft
1050137 Advances against Export Bills - Term Loan
1050139 Advances against Import Bills Term
1050140 Advances against Import Bills - Over Draft
1050141 Mining & Quarry Term
1050142 Mining & Quarry Overdraft
1050143 Loans to Domestic Banks
1050146 Loans to Other Financial Institutions
1050149 Merchandising Loan - Term Loan
1050152 Merchandising Loan - Over Draft
1050155 Transport Loan
1050156 Transport Loan Overdraft
1050158 Staff Loans
1050161 Consumer Loans
1050164 Loans & Advances under Litigation
1050166 Nonperforming loan(NPL) -Term loan
1050200 LOANS AND ADVANCES LONG TERM

1050218 Revenue Stamp Stock NEW
1050219 Export - Term Loan
1050222 Export - Over Draft
1050225 Import - Term Loan
1050228 Import - Over Draft
1050231 Manufacturing Production - Term Loan
1050234 Manufacturing Production - Over Draft
1050235 Hotel & Tourism - Term Loan
1050236 Mining & Quarry
1050237 Advances against Export Bills
1050240 Advances against Import Bills
1050249 Merchandising Loan - Term Loan
1050252 Merchandising Loan - Over Draft
1050255 Transport Loans
1050258 Staff Loans
1050262 Nonperforming loan - Term
1050263 Nonperforming loan - Overdraft
1050264 Loans & Advances under Litigation
1050265 Term Deposit Conversion GL
1050300 PROVISIONS
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1050301 Loan Loss Reserve
1050304 Other receivable Provision
1060000 FIXED ASSETS

1060100 Fixed Assets
1060101 Premises
1060104 Accumulated Depreciation - Premises
1060107 Construction in Progress
1060110 Office & Other Equipment
1060113 Accumulated Depreciation - Office & Other Equipment
1060116 Furniture & Fittings
1060119 Accumulated Depreciation - Furniture & Fittings
1060122 Motor Vehicles
1060125 Accumulated Depreciation - Motor Vehicles
1060128 Computers & Software
1060131 Accumulated Depreciation - Computers & Software
1060134 Acquired Properties
1060136 Box Light (Bank logo)
1060139 Accumulated Depreciation - Box Light
1060142 Counter and Partition
1060145 Accumulated Depreciation - Counter & Partition
1060147 Intangible assets
1060150 Accumulated Depreciation - Intangible assets
1070000 INTER BRANCH ACCOUNTS

1071000 BRANCH ACCOUNTS - SYSTEM
1072000 BRANCH ACCOUNTS MANUAL
1076000 HEAD OFFICE ACCOUNT

1076100 Head office System
1076200 Head office Manual
2000000 LIABILITY
2010000 DEPOSITS
2010100 DEMAND DEPOSITS
2010101 Cooperatives and Associations
2010104 Correspondent Banks - Their Account
2010107 NR - FCY Account
2010110 NR - Transferable Birr Account
2010113 NR - Non-Transferable Birr Account
2010114 DIASPORA DEMAND DEPOSITS
2010116 Domestic Banks
2010119 Other Financial Institutions
2010122 Private and Individuals
2010125 Public Agencies and Enterprises
2010128 Central Government
2010131 Regional Government
2010134 Staff Account
2010137 Retention - FCY A
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2010140 Retention - FCY B
2010141 Current account Platinum Package
2010200 SAVING DEPOSITS

2010201 Cooperative & Associations
2010219 Provident Fund
2010222 Children Trust Account
2010223 Women Account
2010224 Women-Private and Individuals
2010226 Women-Cooperative and Associations
2010229 Diaspora - Birr Account
2010230 Saving Account Platinum Package account
2010231 Provident Fund -Own
2010232 Cash indemnity allowance
2010234 DIASPORA SAVING DEPOSITS
2010300 FIXED TIME DEPOSITS

2010301 Corporate and Associations
2010313 Public Agencies & Enterprises
2010315 DIASPORA FIXED TIME DEPOSITS
2020000 ACCOUNTS PAYABLE

2020100 ACCRUED INTEREST PAYABLE
2020101 Interest Payable - Demand Deposits
2020104 Interest Payable - Saving Deposits
2020107 Interest Payable - Fixed Time Deposits
2020110 Interest Payable - Borrowings
2020113 Interest Payable - Provident Fund
2020200 SUNDARY CREDITORS

2020201 Accrued Leave Payable
2020203 Adjustment & Refund Payable
2020204 Cheques Deposited Pending Clearance
2020205 Blocking Inwards
2020207 Blocked Current Account
2020209 Blocked Saving Account
2020211 Blocked Amounts Payable
2020212 Blocked Fixed time deposit
2020215 Court Cases Payable
2020217 Dividend Payable
2020221 Deposits for Guarantees Issued
22 | P a g e
2020223 Deposits for Import Clearance
2020225 CPO Payable
2020227 Exchange Payable to NBE
2020228 Credit inf. charge payable to NBE
2020229 Import Blocked Account
2020231 Employee Income Tax Payable
2020232 Cost sharing payable
2020233 Withholding Tax Payable
2020234 Pension payable
2020235 Interest Tax Payable
2020237 Value Added Tax Payable
2020239 Business Profit Tax Payable
2020240 Dividend Tax Payable
2020241 L/C Opening Charge Payable
2020244 TTs Payable - Retransfer
2020245 TTs Payable - Local (System)
2020246 TTs Payable - Local (Manual)
2020247 MTs & TTs Payable - Foreign
2020248 Money send/receive(ATM)
2020249 Miscellaneous Payable
2020253 Stamp Duty Charges
2020257 Audit Fee Payable
2020258 Annual Board Fees Payable
2020259 Telephone Payable
2020261 Provident Fund Payable
2020262 Long outstanding Payable
2020263 Staff Payable
2020264 Shareholders Payable
2020265 Margin Held Accounts
2020267 Others Payable
2020270 MT-103 Intermediary GL
2020273 NBE CREDIT INTERMEDIARY GL

2020274 Special Clearance Payable
2020276 Eth-switch payable
2020277 Eth-switch charge payable
2030000 BORROWINGS
2030100 Short Term Borrowings
2030101 National Bank of Ethiopia
2030200 LONG TERM BORROWINGS

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3000000 CAPITAL
3000001 Paid Up Capital
3000004 General Reserve
3000007 Legal Reserve
3000010 Retained Earnings/Loss
3000013 Profit/ Loss Account
3000016 Donated Capital
3000019 Premium Capital
4000000 INCOME ACCOUNTS

4010000 INTEREST INCOME
4010100 INTEREST INCOME ON LOANS
4010101 Agricultural Production
4010102 Interest income on Agricultural Production -Overdraft
4010104 Building and Construction
4010105 Interest income on Building and Construction - Overdraft
4010107 Domestic Trade and Service
4010108 Interest income on Domestic Trade and Service - Overdraft
4010110 Export
4010111 Interest income on Export - Overdraft
4010113 Import
4010114 Interest income on Import - Overdraft
4010116 Manufacturing Production
4010117 Interest income on Manufacturing Production - Overdraft
4010119 Advances against Export Bills
4010122 Advances against Import Bills
4010123 Interest income on Mining & quarry
4010124 Interest income on Mining & quarry Overdraft
4010131 Merchandising Loan
4010132 Interest income on Merchandising Loan - Overdraft
4010134 Transport Loan
4010135 Transport Loan Overdraft
4010137 Staff Loans
4010141 Interest income on Hotel & tourism -Term loan
4010142 Interest income on Hotel & tourism -Overdraft
4010143 Penalty interest income
4010200 INTEREST INCOME ON OVER DRAFT ACCOUNTS

4010201 Agricultural Production
4010204 Manufacturing Production
24 | P a g e
4010207 Domestic Trade & Services
4010210 Export Loans
4010213 Import Loans
4010216 Advance against Export Bills
4010219 Advance against Import Bills
4010222 Buildings & Construction
4010300 INCOME ON SURPLUS FUND

4010304 Interest Earned on Treasury Bills
4010306 Interest Earned on NBE Bills
4010307 Interest Earned on Government Bonds
4010310 Interest Earned on Deposits With Domestic Banks
4010313 Interest Earned on Correspondent Banks
4020000 COMMISSION INCOME

4020100 COMMISSION INCOME - LOCAL
4020101 Commission on CPOs
4020104 Commission on MTs, TTs & DDs
4020107 Commission on Letter of Guarantee Issued
4020110 Commission on Revenue Stamps (5%)
4020113 Commission on Sundries
4020116 Commission on Uncleared Effects
4020118 POS Commission Income
4020200 COMMISSION INCOME - FOREIGN

4020207 Commission on Export
4020210 Commission on Letter of Credit
4020213 Commission on Letter of Guarantee Issued
4020216 Commission on IBC - Foreign
4020219 Commission on OBC
4020225 Commission on Travelers Cheques
4020228 Conformation Commission
4020231 Amendment Commissions
4020234 Extension Commissions
4020237 Advising Commissions
4020240 Cancelation Commissions
4020241 Discrepant Document Charge
4030000 OTHER INCOME

4030100 OTHER INCOME DETAILS
4030101 Bad Debts Collected
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4030102 Dividend Earned on Local Investment
4030104 Branches L/C Opening Charges
4030107 Cash Surplus
4030110 Correspondent Charges
4030113 Gain on Disposal of Assets
4030116 Gain on Foreign Currency Notes
4030119 Gain on Foreign Exchange Valuation
4030122 Insurance
4030125 Legal
4030128 Money Bags
4030131 Postage
4030134 Rent Income
4030137 Safe Deposit Boxes
4030140 Service Charge - Local
4030141 SERVICE CHARGE ON ATM
4030142 POS SERVICE CHARGE
4030143 Service Charge - Foreign
4030144 Service charge on Eth-switch
4030146 Telephone, Telegram , Telex & Fax
4030149 Estimation & Inspection Fees
4030150 Processing Fees
4030152 Penalty Fee For Bounced Cheques (5%)
4030154 POS FEE INCOME
4030155 Sundries
4030156 Standing instruction charge
4030158 Swift charge
5000000 EXPENSE
5010000 INTEREST EXPENSE
5010100 INTEREST EXPENSE DEMAND DEPOSITS
5010101 Cooperatives & Associations
5010110 Private & Individuals
5010116 Staff Accounts
5010117 SAVING PLATINIUM PAKAGE
5010200 INTEREST EXPENSE - SAVING DEPOSITS

5010202 Children Trust Account
26 | P a g e
5010216 P/F Employer Contribution
5010219 P/F Employee Contribution
5010300 INTEREST EXPENSE - FIXED TIME DEPOSIT

5010400 INTEREST EXPENSE - BORROWING

5020000 PROVISIONS EXPENSES

5020100 Loan Provision Expense
5020200 OTHER PROVISIONS

5020201 Other receivable Provision expense
5030000 SALARIES AND BENEFITS

5030100 SALARIES
5030101 Managerial Staff Salaries
5030104 Non Managerial Staff Salaries
5030110 Overtime Non Managerial Staff
5030113 Bonus Managerial Staff
5030116 Bonus Non Managerial Staff
5030200 BENEFITS
5030201 Cash Indemnity Allowance
5030204 Disturbance Allowance
5030207 Funeral Expense
5030210 Housing Allowance
5030211 Acting Allowance
5030213 Hard ship Allowance
5030215 Shifting Allowance
5030216 Representation Allowance
5030219 Maternity Pay
5030222 Medical
5030225 Pension & PF Company Pay
5030228 Residential Rent
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5030231 Staff Insurance
5030234 Severance Pay
5030237 Training & Education
5030240 Uniforms
5030241 Leave payment
5030243 Transport & Fuel Allowance
5030244 Parking & carwash
5030246 Utility Allowance
5030249 Other Benefits
5040000 GENERAL EXPENSE

5040100 DEPRECIATION EXPENSE
5040101 Depreciation Expense - Premises
5040104 Depreciation Expense - Office & Other Equipment
5040107 Depreciation Expense - Furniture & Fittings
5040110 Depreciation Expense - Motor Vehicles
5040113 Depreciation Expense - Computers & Software
5040114 Depreciation Expense - Counter & Partition
5040115 Depreciation Expense - Box light
5040116 Depreciation Expense - Intangible assets
5040200 MAINTENANCE & REPAIR EXPENSES

5040201 Maintenance & Repair - Premises
5040204 Maintenance & Repair - Office & Other Equipment
5040207 Maintenance & Repair - Furniture & Fittings
5040210 Maintenance & Repair - Motor Vehicle
5040213 Maintenance & Repair - Computers & Software
5040300 CONSULTANCY & SERVICE FEE EXPENSES

5040301 Audit Fees
5040304 Consultancy Fees
5040307 Directors Fees
5040310 Legal Fees
5040313 Municipality Fees
5040316 Membership Fees
5040319 License Fees
5040400 OTHER GENERAL EXPENSES

5040401 Advertisement & Publicity
5040404 Cleaning & Sanitation
5040410 Donations & Contributions
5040413 Entertainment
5040416 Inauguration
5040419 Insurance
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5040422 Land & Building Tax
5040425 Money Bags
5040428 Motor Vehicles Inspection & Circulation Fees
5040431 Perdiem & Travel
5040432 Meeting Accommodation
5040434 Fuel & Lubricant
5040437 Postage
5040440 Office Rent
5040443 Revenue Stamps
5040446 Supplies, Stationary & Printings
5040449 Subscriptions
5040452 Telephone, Telegram, Telex & Fax
5040455 Transportation
5040458 Transport of Currency
5040461 Bank Charges & Commissions
5040464 Wages
5040465 Sport expense
5040467 Utilities
5040468 Stamp duty(employment contract)
5040470 Amortization Expense - Establishment Cost
5040473 Leased Line for Computerization
5040476 IT Support
5040477 Security and Janitorial Service
5040478 General assembly
5040479 Sundries
5040480 Penalties
5040481 Swift charge
5050000 OTHER EXPENSES

5050100 OTHER EXPENSES DETAIL
5050101 Loss on Disposal of Assets
5050104 Loss on Foreign Exchange Valuation
5050106 Loss on Foreign Currency notes
6000000 CONTINGENT ASSETS

6000001 Accrued interest on non performing loans & advances
6000002 Accrued Interest on loans and advances under litigation
6000003 Export advising at sight
6000004 Export confirming at sight
6000005 Money bags
6000006 Outward bills for collection(OBC) - Outlying own branch chques
6000007 Outward bills for collection(OBC) - City own branch cheques
6000008 Outward bills for collection(OBC) - Other bank city clearance
6000009 Outward bills for collection(OBC) - Foreign
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6000010 Export advising Acceptance
6000011 Export confirming acceptance
6000012 Travelers Cheques
6000013 Outstanding Import L/C
6000014 Guarantee issued - Local
6000015 Guarantee issued - Foreign
6000016 Inward Documentary Bills for Collection ( IDBC)
6000017 Out ward Documentary Bills for Collection ( ODBC)
6000018 Issue Account Balance at CBE - Branch Level
6000019 Cash Lodgment to CBE Issue Account - By Branch
7000000 CONTINGENT LIABILITIES

7000001 Banks Liabilities On Acceptance L/C
7000002 Bills rediscounted/pledged
7000003 Cash held for NBE issue account
7000004 Construction and other commitments
7000005 Guarantee issued - Local
7000006 Guarantee issued - Foreign
7000007 Outstanding import letter of credit
7000008 Loan commitment - Overdraft
7000009 Loan commitment - Term loan
7000010 Outward Documentary Bills for Collection (ODBC)
7000011 Export confirming at sight
7000012 Export advising acceptance
7000013 Export confirming acceptance
7000014 Accrued interest on non performing loans & advance
7000015 Accrued interest on loans & advance under litigation
7000016 Inward Documentary Bills Collection (IDBC) - Acceptance
7000017 Inward Documentary Bills Collection (IDBC) - at Sight
7000018 Outward Bills for Collection (OBC) - Foreign
CHAPTER FOUR
Chart of accounts
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1000000 ASSET
1010000 CASH
1010100 CASH ON HAND
1010110 Cash -ATM1
4.1 Cash
Cash is the most liquid asset a company can own. A company's cash account in its chart of accounts
includes all currency and coins owned by the company as well as all deposits in the bank including
checking accounts and savings accounts. Cash also includes instruments or contracts that can be
deposited in a bank account like all asset accounts, is a debit account. This means that debit or left entry
in the cash account would increase the cash account. A credit entry would do the opposite.
Cash is recorded as a current asset on the balance sheet. Even though cash can be saved for future
periods, it is still considered a current asset because it can because it can be used in one period.
1. Entry:
Cash collected to be deposited to customer’s account then, the bank receives the correct amount of
cash equal to the deposit slip:
Debit: Cash
Credit: X, depositors account (Liability)
2. Entry:
Cash payment made for the withdrawal from the customer’s account will be:
Debit: X, depositors account (Liability)
Credit: Cash
Most companies set up a special fund called a petty cash fund for small purchases and office
expenditures. The petty cash fund is exactly like it sounds. It is a petty amount of cash-- maybe only $50
to $100. Companies use these funds to buy small items like office supplies and postage instead of going
through the hassle of writing a check for every book of stamps. An imprest system is used to run and
manage a petty cash fund.
First, management has to estimate how many small purchases it will make and much money it will need
for these purchases. Second, a check is written for this amount, and the cash is given to the cashier in
charge of the petty cash fund. As small purchases use petty cash, all the receipts are saved and
recorded. Once the entire petty cash fund is used, the receipts are added up and reconciled with the
31 | P a g e
original amount put in the petty cash fund. If the reconciliation is right, another check is written to
replenish the petty cash fund.
An imprest system like this is extremely important not only to manage how the petty cash is being spent
but also to protect the money from being stolen.
1. Entry:
Establishing a petty cash
Debit: Imprest fund
Credit: Cash
2. Entry:
Replenishing a petty cash
Debit: Various Expenses
Credit: Cash
Cash foreign is the counter value in Birr of various foreign currencies cash notes like USD, GBP and
EURO, etc….
1. Entry:
At the time of buying from customer
Debit: Cash foreign currency (equivalent)
Credit: Cash
2. Entry:
At the time of revaluation
Debit: Cash foreign currency (equivalent)
Credit: Gain/loss on foreign currency
1010110 Cash -ATM
Cash ATM is another form of cash kept in the ATM used for the payment to customers having an ATM
cards.
1. Entry:
At the time of inserting cash on the ATM Machine
Debit: ATM cash
Credit: Cash
4.2 Deposits with other banks
1020000 DEPOSITS WITH OTHER BANK
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1020100 COMMERCIAL BANKS
The account used to deposit cash with other domestic commercial banks. The balance came to existence
at the time when the bank establishment or for any specific purpose.
1. Entry:
At the time of depositing to other domestic banks
Debit: Domestic bank-x
Credit: Cash
4.3 NBE Deposits
1020200 NBE DEPOSITS

A statutory reserve is a minimum amount certain institutions, such as financial institutions and insurers,
must maintain as liquid funds in national Bank of Ethiopia. The purpose of the reserve is to prevent a
bank or insurer from becoming insolvent. It is considered statutory (legal) because the amount required
is dictated by certain laws and regulations governing the actions of the associated industry.
1. Entry:
At the time of depositing to National Bank of Ethiopia
Debit: Statutory Reserve with NBE
Credit: Cash or …
The settlement bank will usually settle all the net transactions at the end of the day (at a particular
anointed time and will settle the net funds for all the participating member banks) using the payment
and settlement account.
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1. Entry:
Assume x-bank is other bank and y bank is Abay Bank at the time of collecting from other bank
Debit: Payment and settlement account
Credit: Customer account of Abay bank branch
2. Entry:
Assume y-bank is other bank and x bank is Abay Bank at the time of collecting from other bank
Debit: Customer account of Abay bank branch
Credit: Payment and settlement account
Issue account is an account used by outline branches in order to deposit excess cash of the branch and
authorize to withdraw cash while there is cash short.
4.4 Foreign Bank Deposits
1020300 FOREIGN BANK DEPOSITS

1020301 Nostro - Commerz Banks
1020302 Nostro - Deutsche Banks
Nostro account refers to account balance in local currency of foreign currency deposits made abroad
bank’s account that a bank holds in a foreign currency in another bank.
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Nostros, a term derived from the Latin word for "ours," are frequently used to facilitate foreign
exchange and trade transactions.
A correspondent bank is a financial institution that provides services on behalf of another, equal or
unequal, financial institution. It can facilitate wire transfers, conduct business transactions, accept
deposits and gather documents on behalf of another financial institution. Correspondent banks are most
likely to be used by domestic banks to service transactions that either originate or are completed in
foreign countries, acting as a domestic bank's agent abroad.
4.5 Short term Investments
103000
INVESTMENTS
0
103010
SHORT TERM INVESTMENT
0
103010
Treasury Bills
1
A short-term investment, also called a temporary investment or marketable security, is a debt or equity
security that is expected to be sold or converted into cash in the next 3 to 12 months. In other words,
it’s a stock or bond that management holds to earn a quick return and plans on selling in the current
accounting period.
Short-term investments have two main requirements. First, they must readily be convertible to cash.
This means that obscure investments in privately held companies couldn’t be classified as a short-term
investment. If it can’t be sold easily and readily, it isn’t a marketable security. Take a stock investment in
a publicly traded company for example. The stock price is easily determined and there are millions of
investors ready and willing to purchase the shares from you.
Second, management must intend to convert or sell the investment within 3 to 12 months. This is a little
bit of a gray area because it is based on management’s intentions. But the market declines and
management decides to keep them longer.
Short-term investments are typically reported as a current asset on the balance sheet and are often
grouped in with the cash and cash equivalents categories. This classification makes sense since
numerous potential buyers easily convert the securities into cash. These investments can also be listed
as trading securities if they are actively managed.
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4.6 Long term Investments
103020
LONG TERM INVESTMENT
0
103020
Equity Investment
1
103020
Government Bond
4
103020
Fixed Time Deposit with banks
5
103020
National Bank of Ethiopia Bills
6
103020
Local Shares
7
Long-term investments are non-current assets that are not used in operating activities to generate
revenues. In other words, LT investments are assets that are held for more than one year or accounting
period and are used to create other income outside of the normal operations of the company.
Fixed Time deposit, NBE Bills, Notes receivable, stocks, and bonds are typically considered to be long-
term investments if management plans to keep them for more than one year. None of these assets are
traditionally used in operating activities. Companies can also invest in assets that could be used in
operations but are held as an investment.
4.7 Suspense accounts
4.7.1 Sundry Debtor
Suspense account is an account used on a temporary basis for any transaction or balance that cannot be
identified.
Sundry Debtor usually refers small or infrequent transactions in the ledger accounts classified as a
group. Sundry debtors are such small entities that owe the company money.
1040101 Adjustment & Refund receivable
A cash discrepancy, especially, shortage found in tellers hands shall be recorded in adjustment and
refund Receivable account until the discrepancy settled by the designated individual or staff.
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In general terms, the excess cash amount payment made above the stated amount in the
ticket/document will be stayed in this account. Before the recording of such differences it should be
apply the procedures available in the cash operation manual.
1. Entry:
In case of cash shortage in excess of cash indemnity
Debit: Adjustment and refund receivable
Credit: cash
2. Entry:
In case of settlement
Debit: cash or staff account
Credit: Adjustment and refund receivable
1040104 Advance on Salary
Amount kept in the above account salary paid prior to the salary date to the bank staff/s.
In general terms, staff salary payment made in advance on public holidays will be debited to the above
account. Before the recording of such transaction it should be apply the procedures available in the HR
manual.
1. Entry:
In case of advance on salary payment
Debit: Advance on salary
Credit: cash/saving account
2. Entry:
Debit: Salary and benefit
Credit: Advance on salary
1040105 Advance payments
Advance payment is a type of payment that is made ahead of its normal schedule, such as paying for a
good or service before you actually receive the good or service. Advance payments are sometimes
required by sellers as protection against non-payment, or to cover the seller's out-of-pocket costs for
supplying the service or product.
1. Entry:
In case of advance payment
Debit: Advance payment
Credit: cash/account
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2. Entry:
Debit: Expense/fixed asset
Credit: Advance payment
1040110 Receivable from Branches under Establishment
Amount kept in the above account payment made for new branches under establishments for the costs
of license fee, modification, perdiem expense for engineers or other staffs or any cost in relation to the
opening of the new branch.
1. Entry:
In case of initial transaction
Debit: Receivable from branches under establishment
2. Entry:
Debit: Expense/fixed asset
Credit: Receivable from branches under establishment
1040113 Deposits for Light and Water
The amount kept in the above account advance payment made for the contractual agreement made for
utility providing companies, and settled while the contractual agreement breaks.
1. Entry:
Debit: Deposits for light and water
2. Entry:
In case of breaks the agreement
Debit: cash
Credit: Deposits for light and water
1040119 Insurance Receivable
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It represents expense incurred by the bank as a result of accidents prior to the insurance
coverage.
1040116 Receivable from Head Office & Branches

1040120 Telephone Receivable
1040122 Leave Pay Receivable
1040123 Janitorial Receivable
1040124 Security Receivable
All the above receivables are an asset designation applicable to all debts, unsettled transactions or other
monetary obligations owed to a bank o bank branches by its debtors or customers depending on the
nature of transaction. And will be settled through responding the payments.
1. Entry:
In case of claiming telephone expense
Debit: Telephone receivable-x branch
Credit: cash/account/CPO
2. Entry:
Debit: x-branch
Credit: Telephone receivable
1040128 Miscellaneous - Foreign Currency
The amount kept in the above account for Foreign Currency cash Shortages of the tellers that cannot
recovered immediately from teller’s cash indemnity allowance or any other minor claims from
correspondent banks in foreign currency pending receipt of the fund.
1. Entry:
In case of shortages
Debit: Miscellaneous Foreign Currency
Credit: cash FCY
2. Entry:
Debit: cash/account
Credit: Miscellaneous FCY
1040137 Revenue Stamps on Hand
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Revenue stamp on Hand debited for the cost of stamps bought by branches to affix on loan contracts
should be kept to the above account.
1. Entry:
In case of establishing
Debit: Revenue stamp on hand
Credit: cash
2. Entry:
In case of affixing to the loan contract
Debit: Account
Credit: Revenue stamp on hand
1040146 Cheque Book Stock Account
Check Book stock account debited for the booklets ordered by the branch in order to issue to various
current account holders.
1. Entry:
In case of establishing
Debit: Cheque Book stock account
Credit: cash /Account
2. Entry:
In case of issuing the booklet
Debit: Account
Credit: Ck book stock account
1040143 Staff receivable
It is used to record any uncollected or unsettled amounts regarding the staff should be kept in the
above account until the sum settled by the designated staff.
1. Entry:
Debit: Staff Receivable
Credit: cash /Account
2. Entry:
Debit: Account/cash
Credit: Staff receivable
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1040131 Miscellaneous - Local Currency
1040149 Other Receivables
The amount kept in the above account for payments or transactions that cannot be classified under any
of the sub heading of account receivable.
1040152 Withholding Tax receivable

1040155 Value Added Tax receivable
The above accounts are used to record bank obligation for payments to tax authority which was not
collected from customers, waiting in this account until the case resolved. Use these accounts required
an approval from the bank’s management.
1. Entry:
In case of payment to tax authority
Debit: VAT Receivable
Credit: cash /Account/CPO
2. Entry:
Debit: x-customer Account/cash/expense/loan account
Credit: VAT receivable
4.7.2 Supplies stock
Supplies stock is a stock account used to keep equipment, materials, or supplies of a business available
in store or supply accumulated; especially: the inventory of the goods of a merchant or manufacturer.
Each items has a separate account in groups.
According to the IFRS LIFO method should be used for inventory purpose.
1040200 SUPPLIES STOCK
1040201 Central Stationary Stock
1040204 Office and Other Equipment Stock
1040207 Furniture & Fittings Stock
1040208 Computer & Software Stock
1040210 Negotiable Instruments Stock
41 | P a g e
1040211 Time deposit format Stock
1040213 Revenue Stamp Stock
1040216 Bank Forms Stock
1040219 Pass Book Stock
1040222 Uniform Stock
1040225 Stock Accounts - Others
1. Entry:
In case of holding the inventory
Debit: Bank form stock, etc…
Credit: cash /Account/CPO
2. Entry:
In case of distribution
Debit: Claims on HO & branch/Fixed asset/Expense
Credit: Bank form stock, etc…
4.7.3 Un-cleared Effects Local
Un-cleared Effects – Local is an account in the general ledger that summarizes and controls payments
made on behalf of other branches or expenses which are not the paying branch. The branch that that
effect payment has to be reimbursed the amount it paid. The paying branch has request the concerned
bank branch/organ to refund the amount through HO Finance and accounts.
1040300 UNCLEARED EFFECTS - LOCAL

1040301 Blocking Outwards Cheques
1040304 Blocking Outwards Savings
Account for un-cleared effect debited for those branches that lost their network from the central server
system due to network failure or power interruption or for manual branches. The online branches can
be directly deducting any withdrawal from the customer account.
Blocking outward cheque/saving is a method that enables other branch customer withdraw cash from
his checking/saving account by going to a branch other than the one he/she actually maintains his/her
account. The branch has to receive a cheque from the customer should be verified and checked with the
copy of his/her ID and should be approved as per the accounting manual of the bank with proper
authorization, the branch will prepare the outward blocking format by deducting all charges and
attached the copy of the cheque a branch and will send to the concerned branch through postal service.
The tracer should be kept in the hands of the accountant and the appropriate regular follow-up should
be maintained.
1. Entry:
In case of paying
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Debit: Blocking outward saving or cheques
Credit: cash and various accounts
2. Entry:
Debit: x-Branch
Credit: Blocking outward saving or cheques
1040310 Cash in Transit - Foreign Currency
The cash in transit foreign currency records the amount of foreign currency shipped from branches to
Head office finance.
1. Entry:
In case of transferring FCY
Debit: Cash in-transit Foreign
Credit: cash FCY
2. Entry:
Debit: HO account
Credit: Cash in-transit Foreign
1040313 Cash in Transit - Local Currency
The cash in transit local currency records the amount of local currency shipped from branches to Head
office.
1. Entry:
In case of transferring cash
Debit: Cash in-transit Local
Credit: cash
2. Entry:
Debit: HO
Credit: Cash in-transit local
1040316 Claims on Head Office and Branches
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Claims on Head office and branches account widely used for payments made on behalf of another
branch/department, that the branch has to be reimbursed the amount paid. These kinds of requests for
reimbursement kept in the above account.
1. Entry:
In case of claiming
Debit: Claims on HO and Branch
Credit: cash /sock account/loan/expense/salary/account/ etc…
2. Entry:
Debit: HO or x- branch
Credit: Claims on HO and Branch
1040319 Cashiers Payment Orders Paid
Cashier Payment orders Paid (CPO Paid) is another type of claiming of CPO paid in other branch instead
of issuing branch for the same bank for known customer with a confirmation of the other branch.
1. Entry:
In case of claiming
Debit: CPO Paid
2. Entry:
Debit: HO or x- branch
Credit: CPO Paid
1040331 Telegraphic Transfers Received
Telegraphic Transfer is the fastest mode of money transfer and is used for payments, Transfer of funds
by telegraph, telex, cable, from a bank to its branch authorizing the payment of funds to a specified
account or customer.
Telegraphic transfer is the way of transferring funds from one branch to another through telephone by
using codes. TT Received manual transfers will apply for those branches unable to send their transfers
due to network failure or power interruption or for manual branches which has no connection at all. The
online branches can directly send their TT Transfers through Flex Cube system. However, the account
still holds a great number of transactions on this account.
1. Entry:
In case of receiving the correct message
Debit: TT Received
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Credit: TT payable/customer account
2. Entry:
Debit: x- branch
Credit: TT Received Local
1040335 NBE Debit Intermediary GL
It represents deduction of ERCA CPO in batch and other expenses/charges payable to NBE facilitated
using this account. It is used by Finance and accounts only.
1. Entry:
In case of receiving the claim through credit payment and settlement via system
Debit: NBE Debit Intermediary GL (at Abay)
Credit: Payment and settlement account credit (at NBE)
2. Entry:
In case of settlement at Abay
Debit: Expense/batch ERCA CPO claim to various branches
Credit: NBE Debit Intermediary GL
1040336 GL Posting
GL Posting account is an account used to facilitate the posting of any transaction such as many-to-one or
vice versa transactions or any posting to be made on the same account at the same time on Flex Cube
system should not be accepted then, the transaction will be kept for a while on this account. It is used
by all branches and it should be nil at the end of each day, because it is not a proper account to have
other than a ZERO balance.
1. Entry:
In case of initiation
Debit: GL Posting
Credit: any other accounts
Credit: any other accounts
2. Entry:
Debit: any other accounts
Credit: GL Posting
QA00
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1040337 Eth-switch receivable
Eth-switch receivable is a receivable account in case of cash paid to other bank customers at our ATM
and will be settled by the Eth-switch.
1. Entry:
Debit: Eth-switch Receivable
Credit: Cash
2. Entry:
Debit: Payment and settlement
Credit: Eth-switch Receivable
4.7.4 Un-cleared Effects Foreign
Un-cleared Effects – Foreign are short term receivables used for negotiable outward bills purchased,
outward documentary bills purchased, incoming TT’s and Drafts on the bank kept until settled by our
foreign correspondent banks.
104040
UNCLEARED EFFECTS - FOREIGN
0
1040401 Outward Documentary Bills Purchased (ODBP)
ODBP is the way of paying to exporters against their export documents if the documents are presented
in accordance with the letter of credit sent by the correspondent bank.
1. Entry:
Debit: ODBP
Credit: Various charges
Credit: Exchange payable to NBE
Credit: cash/customer account
2. Entry:
Debit: Correspondent Bank Ac
Credit: ODBP
104040
Outward Bills Purchased (OBP)
4
46 | P a g e
OBP is the way of paying foreign checks or drafts or travelers cheques, etc... in which the bank pays to
the beneficiary immediately and claims the amount from the correspondent bank that issued the
instrument.
1. Entry:
Debit: OBP
2. Entry:
Credit: OBP
1040407 MTs, TTs & Drafts Received
MTs, TTs, SWIFT, Drafts Foreign account used to record foreign transfers in MTS TTS SWIFT received
from abroad in favor of local customers kept in the above account.
1. Entry:
Debit: MTs TTs Received
2. Entry:
Credit: MTs TTs Received
When both original message and advice received together
Credit: various charges
104040 UE money gram paid

8
104040 UE western union paid
9
104041 UE Express paid
0
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104041 UE Dahabshil paid
1
104041 UE Trans-fast paid
2
104041 UE Irman International
3
104041 RIA Money Transfer
4
104041 Amal Express
5
It is a transfer of money from a migrant worker to their families or other individuals in their home
countries. In many countries, remittance constitutes a significant portion of the GDP. The United States
is the leading source of foreign remittances, followed by Russia and Saudi Arabia.
1. Entry:
Debit: UE Money gram, etc …
2. Entry:
Credit: UE Money gram, etc …
Credit: commission
4.7.5 Prepayments
Prepayments are payments which have been made already, but the benefits of which are not yet taken
by the company. Prepayments are amounts paid for by the business in advance of the goods or services
being received at the period or year end.
1040500 PREPAYMENTS
1040501 Prepaid Rent
Prepaid Rent is a compensation paid for the use of another person property such as buildings, premises,
etc…for a certain period. The period of the rent usually exceeds one year. The bank recognizes the part
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of the rent, which is used in each month treated as an expense. The unused part of the rent paid in
advance is recorded as prepayment for the rent in the asset part of the balance.
1. Entry:
Debit: Prepaid Rent
2. Entry:
In case of settlement as per the schedule
Debit: Office Rent expense
Credit: Prepaid rent
1040502 Prepaid Insurance-Vehicles

1040503 Prepaid Insurance-Life
1040504 Prepaid Insurance-Money
Prepaid insurances are payment made in advance for vehicle, life and money etc…for a certain period.
The period of the insurance is not exceeds a year. The bank recognizes the insurance expense, which is
used in each month treated as an expense. The unused part of the insurance paid in advance is recorded
as prepayment for the insurance in the asset part of the balance.
1. Entry:
Debit: Prepaid insurance
2. Entry:
In case of settlement as per the schedule
Debit: Insurance expense
Credit: Prepaid insurance
104051
Other Prepayments
0
Other prepayment account is an account that is used to record transactions that cannot be categorized
in the above accounts.
104050 Construction In
8 Progress
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Construction in progress account is used to record payments made for the construction of bank’s
building to the contractor.
4.7.6 Assets awaiting for resale
The account used to record vehicle, buildings, machineries and etc… acquired collateral in case of NPL
will be kept in this account until it is sold.
1040600 ASSETS AWAITING FOR RESALE

1040601 Vehicle
1040604 Buildings
1. Entry:
In case of acquiring
Debit: Building/vehicle…
Credit: Loan account
2. Entry:
In case of sale
Debit: cash
Credit: Building/vehicle…
4.7.7 Accrued interest receivables
Accrued interest receivables are receivables or revenue earned but not collected from various loan
accounts, treasury bills, bonds and penalties until the current period will be collected at maturity.
1040700 ACCRRUED INTEREST RECEIVABLE

1040702 Penalty Interest Receivable on Loans & Advances
1040704 Interest Receivable on Treasury Bills
1040706 Interest Receivable on NBE Bills
1040707 Interest Receivable on Government Bonds
1040714 Interest Receivable on Overdraft
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1040716 Dividend Receivable
1040717 Accrued Interest receivable on agricultural production - TL
1. Entry:
In case of accruing
Debit: Interest receivable on treasury bills
Credit: Interest income
2. Entry:
In case of Collection
Debit: x-Loan account/Payment and settlement
Credit: Interest receivable on TL manufacturing, Treasury bill
4.7.8 Deferred Charges
A deferred charge is an expenditure that is paid for in one accounting period, but for which the
underlying asset will not be entirely consumed until one or more future periods have been completed.
Consequently, a deferred charge is carried on the balance sheet as an asset until it is consumed. Once
consumed, a deferred charge is reclassified as an expense in the current period.
1040800 DEFERRED CHARGES

1040801 Prepaid for Lease

An organizational cost or expense is the initial cost incurred to create a company. Organizational costs
usually include legal and promotional fees to establish the company with the state and federal
government. In other words, organizational expenses are the costs of organizing or incorporating a
company.
1. Entry:
In case of deferring
Debit: Organization cost
2. Entry:
In case of amortization
Debit: Expense account
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Credit: Organization cost
4.8 Loans and advances
This is the survival unit of the bank because until and unless the success of this department is attained,
the survival is a question to every bank. If this section does not properly work the bank itself may
become bankrupt. This is important because this is the earning unit of the bank. Banks are accepting
deposits from the depositors in condition of providing interest to them as well as safe keeping their
interest. Now the question may gradually arise how the bank will provide interest to the clients and the
simple answer is – Loans & Advance.
Loans refer to a debt provided by a financial institution for a particular period while Advances are the
funds provided by the banks, which needs to be payable within one year.
Credit is continuous process. Recovery of one credit gives rise to another credit. In this process of
revolving of funds, bank earns income in the form of interest. A bank can invest its fund in many ways.
Bank makes loans and advances to traders, businessmen, and industrialists. Moreover nature of credit
may differ in terms of security requirement, disbursement provision, terms and conditions etc. The
bankers have to keep in mind that lending is for the best interest of the community and lending should
be directed to productive sectors only.
Functions of Advance Department:
 Ensuring that funds are disbursed only after compliance with terms and conditions or required
documents received.
 Make sure that the bank has always valid and current loan documentation.
 Ensuring that the collateral security is adequate at times to support the loans.
 Keeping the loan documentation under safe custody.
 Ensuring that the bank receives sufficient valid insurance cover whenever required from a
recognized insurance company.
 Monitoring the receipt of periodical receivable.
 Debiting the client for all charges, interest etc.
 Maintaining the central liability records for all extensions of credit and balancing the totals with
General Ledger.
 To earn interest from the borrowers and give the depositors interest.
 To accelerate economic development by providing different industrial as well as agricultural
advances.
 To create employment by providing industrial loans.
 To pay the employees as well as meeting the interest groups.
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4.8.1 Lending
Introduction:
Lending involves elements of risks. The element of risk, in the main operations of a bank, leads to the
necessity of credit investigation. It presupposes right selection of borrower, which needs complete and
comprehensive investigation of all the facts. As a matter of fact, much of the worries of the lending
banker is over if correct type borrowers can be selected. To arrive at a decision about selection of a
borrower the banker needs to collect a long chain of information about the borrower. Usual loan
application forms when filled in by the applicant provide the banker with almost all the required
particulars pertaining to the advance. The banker’s responsibility is to verify and correlate those
statements and to prepare a credit report, which is expected to give a complete, clear, correct and
reliable record of the character, means and business integrity of the borrower. On the basis of credit
information and credit report, the banker may arrive at a reasonably correct decision about the
proposed advance. Credit investigation is, therefore, a sacred and obligatory job of a lending banker for
administering his lending operations with success.
4.8.2 Sound Principles of Lending:
It is a fundamental precept of banking everywhere that advances are made to customers in reliance on
his promise to repay, rather than the security held by the banker. Although all lending involves some
degree of risks, it is necessary for any bank to develop sound and safe lending policies and new lending
techniques in order to keep the risk to a minimum. As such, the banks are required to follow certain
principles of sound lending.
Safety: Advances should be expected to come back in the normal course. The repayment of the loan
depends upon the borrower’s capacity to pay and willingness to pay. The capacity depends upon the
tangible assets of the borrower. The willingness to pay depends upon the honesty and character of the
borrower.
Liquidity: Liquidity is the availability of bank funds on short notice. The borrower must be in a position
to repay within a reasonable time. Liquidity also signifies that the assets should be salable without any
loss.
Profitability: A banker has to see that major portion of the assets owned by it is not only liquid but
also aim at earning a good profit. The difference between the interest received on advances and the
interest paid on deposits constitutes a major portion of bank’s income. Besides, foreign exchange
business is also highly remunerative.
Purpose: A banker would not throw away money for any purpose for which the borrower wants. The
purpose should be productive so that the money not only remains safe but also provides a definite
source repayment.
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Security: Security serves as a safety valve for an unexpected emergency. The security offered for an
advance is a cushion to fall back upon in case of need. An element of risk is always present in every
advance however secured it might appear to be.
Spread/ Diversity: The advances should be as much broad-based as possible and must be in keeping
with the deposit structure. The advances must not be in one particular direction or to one particular
industry. Again, advances must not be granted in one area alone.
National Interest: Bank has significant role to play in the economic development of a country. The
banker would lend if the purpose of the advance is for overall national development.
4.8.3 Credit Investigation:

Different phases of Credit Investigation:
1. Collection of information of the entrepreneur
2. Preparation and analysis of this information in order to determine creditworthiness of
the borrower/ entrepreneur
3. Making decisions and recommendations about the borrower
4. Furnishing credit information to other bankers
5. Retention of the information for future use
Sources of information for credit investigation:
1. Personal Interview:
The first and most obvious information that can be derived from the borrower by personal interview in
the following manner:
1. Refreezing:
 Try to get introduced with the entrepreneur

 Be informal with him
 Know him personally and earn his acceptance
 Be frank, upright and sincere
2. Assessing achievement need:
 Ask about his past experiences during student life and afterwards and try to assess whether he
is a winner character or loser
 Mark his enthusiasm when the entrepreneur describes his achievement/ success
 Try to assess the extent of optimism and pessimism
 Make notional rating about his achievement need (positive/neutral/negative)
3. Assessing attitudes of the entrepreneur:
 Try to note entrepreneur’s responses indicating his inclination to literature, business,

economics, history etc.
 Check and recheck if his attitude is proper towards business management
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 Examine his responses and deliberations to find out whether trend of response is positive or
negative
 Try to assess his attitudes on the above lines and rank him accordingly (High/average/low)
4. Assessing overall knowledge about the project:
 Discuss about the project the entrepreneur has submitted

 Check if he is familiar with the project that contained in the profile
 Check the information given by the entrepreneur contained in the profile
 Rank his project knowledge according to the correctness of project information
(high/modest/low)
5. Assessing management skill:
 Try to assess entrepreneur’s skills in managing people, material resources and financial
resources
 Try to know his capability about assessing others
 Note if he is critical about others
 Note his appreciation about others
 Assess his knowledge about the product/service
 Assess his knowledge about the competitors
 Assess his knowledge about the price, consumer group and consumer behavior
 Assess his knowledge about actual market where his product is likely to be marketed
 Assess his knowledge about demand gap
 Rank his management skill on the basis of above discussion (high/average/low)
2. Borrower’s Loan Application: Loan application entails a detailed questionnaire where from
borrowers answer provide some basic information
3. Bank’s own record: Bank’s own record provides applicant’s transaction behavior. In case of old
borrower information are available regarding previous borrowings and the repayments were
made as per sanction stipulation.
4. Reports obtained through friends or rivals: Banks may obtain information about the borrowers
in the same line of trade or business.
5. Confidential Report/ Status Report from fellow bank
6. Spot verification
7. Market reports
8. Financial statement of the applicant
9. Income Tax statement
10. Trade checking
11. Reports from Chamber of Commerce and Industry
12. Reports from Registrar of Joint Stock Company in case of Limited Company
13. Personal visit to the applicant’s business, plant or trade center
14. Other sources:
 Press reports regarding purchase, sale, auction of property
 Registration records, municipal records currently NBE credit information system
etc.
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Preparation of Credit Report:
On the basis of credit investigation, bankers prepare a credit report for the applicant usually as per
Performa used by the respective bank. The report generally includes the following under different
ownership:
1. Name
2. Worth
3. Date
4. Registered Office
5. Address (present, permanent and business)
6. Nature of business
7. Constitution of the firm
8. Date of establishment
9. Incorporation and Commencement certificate
10. Associates and allied concerns with details of assets and liabilities
11. Manufacturing and Trading Account
12. Profit & Loss Account
13. Analysis of Balance Sheet
14. Facilities requested
15. Ability to furnish equity and collateral
16. Other bank report
17. Manager’s opinion
4.8.4 Credit Report Analysis:
An analytical study is required whether a particular project is accepted or rejected:
1. Managerial Aspect
2. Organizational Aspect
3. Technical Aspect
4. Marketing Aspect
5. Financial Aspect
6. Economic Aspect
Selection of Borrowers: Selection of borrowers is to be considered as per lending principles and

Bangladesh Bank Guidelines.
Borrower Selection Criteria: The following points should be taken into consideration:
1. The borrower must be a real entrepreneur

2. He must be resident of the project area
3. He should have at least 20% of the total project value as his equity
4. He should have the ability to offer collateral security acceptable to the lending bank
Methods of Selection:
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In selecting the borrower, the following aspects should be considered
1. Past behavior of the borrower requires to be studied. Enquiry should be made whether the
applicant has availed of any loan previously from other bank and whether his dealings with that
bank are regular or not.
2. Work experiences of the intending borrower—what are the activities undertaken by him—his
successes and failures along with analysis of the underlying factors.
3. Whether the work area has any relevance to the project proposed to be undertaken y him.
On investigation and enquiry the banker reaches his conclusion to select a borrower that qualifies the
5(five) essentials, which may be termed as five C’s:
1. Character
2. Capacity
3. Capital
4. Condition
5. Collateral
Character:
Character denotes integrity of the borrower i.e. he should have willingness to repay the money
borrowed. The banker should investigate every aspect of the character factor and should convince
himself that despite adverse conditions, the applicant will make every effort to discharge his debt as per
terms.
Capacity:
Capacity means the ability to employ the funds profitably according to the terms and conditions. The
capacity of the borrower has to be determined to find out his experiences in the line in which he is
working.
Capital:
Capital denotes financial soundness. The borrower must have his own stake in the business which
creates a sense of involvement in the mind of the borrower. Capital is the financial strength of a risk as
measured by the equity or net worth of the business.
Condition:
Condition refers to the general business condition and the conditions in the particular industry in which
the borrower is engaged. The banker should exercise prudence whether the business establishments are
existent and continuing their business.
Collateral:
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Collateral implies the additional securities taken to offset weaknesses that are apparent. All of the
collateral that may be made available to the bank will not make a bad loan good but it will make good
loan better. While assessing valuation of collateral securities bankers need to take extra care by
sampling survey and by examining information from land revenue office and also enquiring people
nearby. The documents of the collateral securities are to be verified from the concerned Sub-Registered
Office and other related office.
Types of Credit: Direct- indirect / Funded–Non-funded, Long Term-Short Term etc.

Depending on different criteria, nature & purpose, Loans & Advances may be categorized as follows:
On the Basis of Fund:

 Funded Credit eg. Working capital, construction, Project Loans etc…
 Non-Funded Credit: eg. L/C,
On the Basis of Duration:
 Long Term Credit
 Mid-Term Credit
 Short Term Credit
On the Basis of Security:
 Secured Advance
 Unsecured Advance
On the Basis of Size of Loan & Other Conditions:
 Retail Credit
 Corporate Credit
On the Basis of Sectors & Target group:
 Individual/Personal Credit
 Rural Credit
 Consumer Credit
 Micro Credit
On the Basis of Entrepreneurship:
 Small & Medium Enterprise
 Women Entrepreneurship
On the Basis of Participation & Risk Management:
 Syndicate Finance
 Consortium Finance
 Bridge Finance
In the Context of Foreign Trade:
 Import Finance :
 Export Finance:
On the Basis of Loan Classification:
 Demand Loan (Overdraft Loan)
 Term Loan
 Short term loan
 Long term loan
Short term loan
Main Sources of Funds are:

 Deposits-
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“Don’t put all your eggs in one Basket”
Banks usually distribute their LDOs and Investments keeping the aforesaid into mind. Some sectors,
shares or securities may get priorities but not the whole attention. However, the Mix or the Budget is
formulated considering the following notable factors:
4.8.5 Factors to be considered for Portfolio Distribution
Among several factors some major factors are:
 Marketability
 Comparatively better Yield
 Environment and Climate Risk Aspects
 Govt. and Legal Aspects
 Risk Return Trade Off
1050000 LOANS AND ADVANCES

1050100 LOANS AND ADVANCES SHORT TERM
Term loan
A term loan is a loan from a bank for a specific amount that has a specified repayment schedule and a
fixed or floating interest rate. For example, many banks have term-loan programs that can offer small
businesses the cash they need to operate from month to month. Often, a small business uses the cash
from a term loan to purchase fixed assets such as equipment for its production process.
Overdraft
A credit agreement made with a financial institution that permits an account holder to use or withdraw
more than they have in their account, without exceeding a specified maximum negative balance.
Establishing an overdraft facility with a bank can help an individual or small business with short term
cash flow problems, although the negative balance typically needs to be repaid within a month.
Short term types of Loans and advances
Agriculture Production Term loan: is a term loan to finance agricultural activities.
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Agriculture Production Overdrafts: is an OD facility to finance agricultural activities.
Building and Construction Term loan: is a term loan to finance construction activities.
Building and construction Overdrafts: is an OD facility to finance construction activities.
Domestic trade Term loan: is a term loan to finance local trade business activities.
Domestic trade Overdrafts: is an OD facility to finance local trade business activities.
Export Term loan: is a term loan to finance export activities.
Export Overdrafts: is an OD facility to finance export activities.
Advance against export bills: an advance can be made on export bills with approved margin after
complete relative documents are presented and properly checked by the bank.
Import Term loans: is a term loan to finance importers activities.
Import Overdrafts: is an OD facility to finance importers activities.
Advance against import bills: an advance can be made on import letter of credit when the relative
documents are presented to the negotiating bank and reimbursement is made by the debit of our
account based on the document upon the arrival until the opener comes at our counter.
Manufacturing Production Term loan: is a term loan to finance manufacturing activities.
Manufacturing Production Overdrafts: is an OD facility to finance manufacturing activities.
Personal loan: is a loan granted to staff and customers in line with existing credit policies.
Long term types of Loans and advances
Building and construction term loan:

Project loans:
Loans and advances in legal: Outstanding balances of any of the above stated economic loan
transferred for legal action.
1. Entry:
In case of granting a loan
Debit: DTS Term loan
Credit: customer account
2. Entry:
In case of accrual
Debit: Accrued Interest Receivable Term loan
Credit: Interest Income
3. Entry:
In case of monthly payment
Debit: Customer account
Credit: DTS Term loan
Credit: Interest Income
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4.9 Property, Plant and Equipment (Fixed assets)
Property, plant and equipment are tangible items that are:

 held for use in the production or supply of goods or services, for rental to others or for
administrative purposes
 expected to be used during more than one accounting or financial period
Amount held can vary widely depending upon the industry and size of the entity.
• Property, plant and equipment should only be recognised as an asset if, and only if:
 probable that future economic benefits associated with the item will flow to the entity;
 cost of the item can be measured reliably
• An item of property, plant and equipment which qualifies for recognition as asset should initially
be measured at its cost
4.9.1 Cost comprises:
Purchase price, including import duties and non-refundable purchase taxes

Less trade discounts and rebates
Costs directly attributable to bringing the asset to the location and condition
Costs directly and necessarily incurred for item to operate in the intended manner
Anticipated costs of dismantling/removing the asset, together with any site restoration
costs
• Replacements and overhauls should be capitalised if they lead to an enhancement in
performance
• All other subsequent expenditure should be recognised as an expense in the period in which it is
incurred
• Day-to-day servicing costs are revenue expenditure
4.9.2 Depreciation:
• This is the measure of the wearing out, consumption or other reduction of a non-current asset
• The depreciable amount (net of residual value) of an asset should be allocated on a systematic
basis over its EUEL so as to charge a fair proportion if cost or valuation to each accounting
period expected to benefit from its use
• The depreciation method used should reflect the pattern in which the asset's future economic
benefits are expected to be consumed by the entity
• The depreciation charge for each period should be recognised in profit or loss unless it is
included in the carrying amount of another asset
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4.9.3 Cause of Depreciation
• Physical – wear and tear and erosion

• Economic factors – obsolescence and inadequacy
• Time
• Depletion
4.9.4 Residual value
 The residual value is the estimated amount that an entity would currently obtain from the
disposal of the asset if the asset were already of the age and in the condition expected at the
end of its useful life
 The residual value of an asset shall be reviewed at least at each financial year end
 In order to determine if PPE is impaired, the procedures in IAS 36 Impairment of Assets should
be followed
Land and building
 Land and buildings should be dealt with separately for accounting purposes
 Land normally has an infinite life and should not be depreciated
 Buildings have a finite life and should be depreciated
 An increase in the value of the land on which the building stands does not affect the
determination of the estimated life of the building
Method of depreciation
• The two most common methods are:

• Straight-line
• Reducing balance
What is 'Accumulated Depreciation?'
Accumulated depreciation is the cumulative depreciation of an asset up to a single point in its life.
An asset's carrying value on the balance sheet is the difference between its purchase price and
accumulated depreciation. A company buys and holds an asset on the balance sheet until the salvage
value matches the carrying value.
1060000 FIXED ASSETS

1060100 Fixed Assets
1060101 Premises
1060104 Accumulated Depreciation - Premises
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1. Entry:
In case of registering/buying
Debit: Office Equipment
2. Entry:
In case of yearly depreciation
Debit: Depreciation expense-Office equipment
Credit: Accumulated depreciation-Office equipment
1060107 Construction in Progress
An accountancy term, construction in progress (CIP) asset or capital work in progress entry records the
cost of construction work, which is not yet completed (typically, applied to capital budget items). A CIP
item is not depreciated until the asset is placed in service.
106010
Premises
1
Premise in accounting means a complete piece of property. In its entirety including property, fencing,
shrubbery, landscaping, sound systems, surveillance systems, lighting systems, everything attached or
designates the properties’ character.
106011
Office & Other Equipment
0
It is a long-term asset account reported on the balance sheet under the heading of property, plant, and
equipment. Included in this account would be copiers, computers, printers, fax machines, etc… which
have a useful life of more than a year.
1060116 Furniture & Fittings
Furniture and fittings are movable furniture, fittings such as desks, tables, chairs, counters, fire
extinguisher, filing cabinets, refrigerators, curtains, ventilators and etc… which have a useful life of more
than a year.
106012
Motor Vehicles
2
A motor vehicle is a self-propelled road vehicle and off-road vehicle , commonly wheeled, and used for
bank operations having more than a year.
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1060128 Computers & Software
Software is a generic term for organized collections of computer data and instructions, often broken
into two major categories: system software that provides the basic non-task-specific functions of the
computer, and application software which is used by users to accomplish specific tasks. However both
will be categorized in computer and software account.
10601
Intangible assets
47
An intangible asset is an asset that is not physical in nature. Corporate intellectual property, including
items such as patents, trademarks, copyrights and business methodologies, are intangible assets, as are
goodwill and brand recognition.
IAS 38, intangible asset an identifiable non-monetary asset without physical substance.
 Two categories of intangible asset:

 externally acquired or
 internally generated
Internally generated intangible assets
Internally generated goodwill shall not be recognised as an asset. No intangible asset arising from
research (or from the research phase of an internal project) shall be recognised.
Expenditure on research (or on the research phase of an internal project) shall be recognised as an
Expense when it is incurred. An intangible asset arising from development (or from the development
phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the
following:
(a) The technical feasibility of completing the intangible asset so that it will be available for use or
sale.
(b) Its intention to complete the intangible asset and use or sell it.
(c) Its ability to use or sell the intangible asset.
(d) How the intangible asset will generate probable future economic benefits. Among other things,
the entity can demonstrate the existence of a market for the output of the intangible asset or
the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
(e) The availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset.
(f) Its ability to measure reliably the expenditure attributable to the intangible asset during its
development.
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(g) Internally generated brands, mastheads, publishing titles, customer lists and items similar in
substance shall not be recognised as intangible assets.
IAS 38 Intangible Assets are:

• Purchased goodwill and intangible assets should be capitalized as assets
• Internally generated goodwill should not be capitalized and
• Internally developed intangible assets should be capitalized only where it is probable that future
economic benefits attributable to the asset will flow to the enterprise and the cost of the asset
can be measured reliably
• Capitalized assets are subject to amortization and/impairment review.
4.10 Inter Branch Accounts
A transaction that takes place in a branch of your bank may involve accounts that are maintained in
another branch. For example, a customer has an account in the Head Office branch and approaches
another branch of the bank for a cash withdrawal.
For each combination of branches that may be involved in an inter-branch transaction, you can define
the currency and the respective customer accounts to which the related accounting entries will be
posted.
The accounting entries for such inter-branch transactions can be routed in one of the following ways:
 Directly - where each branch will have a direct accounting relationship with all other branches
 Through a Regional Office -- where two branches involved in a transaction will interact
through a common RO
 Through the Head Office -- where the two branches involved in the inter-branch transaction
will interact only through the HO.
Therefore, Inter branch account is an account used to facilitate the transfers made from one branch to
another branch or one branch to various Head office departments or vice versa.
INTER-BRANCH TRANSACTIONS- When a branch sends goods or cash to another branch, it is called inter-
branch transactions.
There are two types of inter branch account:
 Manual inter branch account: manually will be debited or credited

 System inter branch account: debited or credited by the system itself
1. Entry:
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In case of Manual Inter branch at Branch responding a claim
Debit: Telephone expense
Credit: HO account
2. Entry:
In case of Manual Inter branch at HO settling a claim
Debit: Branch account
Credit: Claims on HO & branch
The reconciliation process
 Ccompare the balance of ‘branch account’ in the head office books with the balance of ‘head
office’ in the books of branch. If the two balances are same, there is no need for reconciliation.
But in case of difference, the following steps must be followed.
 Find out the reason for the difference in balances.
 Pass adjusting entries either in the books of head office or in the books of branch, but not in
both sets of books.
1. Entry:
In case of registering/buying
Debit: Office Equipment
2. Entry:
In case of yearly depreciation
Debit: Depreciation expense-Office equipment
Credit: Accumulated depreciation-Office equipment
4.11 Liability
A liability is an obligation to pay an asset in the future. Accounts payable are obligations to pay a
creditor for goods purchased or services rendered. A creditor owns the right to receive payment
from an individual or business.
It has three essential characteristics:
1. Probable future sacrifice of resources on determinable date and cash value
2. The entity has little or no judgment to avoid transfers
3. The entity obligation is already occurred
2000000 LIABILITY
2010000 DEPOSITS
2010100 DEMAND DEPOSITS
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4.11.1 Deposits
2010100 DEMAND DEPOSITS –NON RESIDENTS

2010107 NR - FCY Account
2010110 NR - Transferable Birr Account
2010113 NR - Non-Transferable Birr Account
2010100 DEMAND DEPOSITS – RESIDENTS

Demand deposits are deposits of money in a bank subject to withdrawal on demand by cheque.
A demand deposit consists of funds held in an account from which deposited funds can be
withdrawn at any time from the depository institution, such as a checking or savings account,
accessible by a teller, ATM or online banking.
Demand deposit may be originated either:
1. By depositing funds in bank and withdraw on demand

2. By borrowing from a bank (OD account)
4.11.2 Saving Deposits
2010200 SAVING DEPOSITS

2010201 Cooperative & Associations
2010219 Provident Fund
A savings account is an interest-bearing deposit account held at a bank or another financial

institution that provides a modest interest rate.
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4.11.3 Fixed Time Deposits
201030
FIXED TIME DEPOSITS
0
2010301 Corporate and Associations
A time deposit is an interest-bearing bank deposit account that has a specified date of maturity,
such as a savings account or certificate of deposit (CD). The funds in these accounts must be
held for a fixed term and include the understanding that the depositor can make a withdrawal
only by giving notice.
4.11.4 Accrued interest payable on Deposits
202010
ACCRUED INTEREST PAYABLE
0
2020101 Interest Payable - Demand Deposits
2020104 Interest Payable - Saving Deposits
2020107 Interest Payable - Fixed Time Deposits
2020110 Interest Payable - Borrowings
2020113 Interest Payable - Provident Fund
Accrued interest is the amount of interest that has already occurred, but has not yet been paid
to the customer deposit account. The e xpense must be recorded in the accounting period in which it
is incurred. Therefore, accrued expense must be recognized in the accounting period in which it occurs
rather than in the following period in which it will be paid.
1. Entry:
In case of initial entry
Debit: Interest expense
Credit: Accrued interest payable
4.12 Sundry Creditors
2020201 Accrued Leave Payable
Accrued Leave payable is the amount of leave time that an employee has earned as per a company's
employee benefit policy, but which has not yet been used or paid. This is a liability for the employer.
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1. Entry:
In case of accruing
Debit: Accrued interest expense on saving x customer
Credit: Accrued interest payable
2. Entry:
In case of settlement at maturity
Debit: Accrued interest payable
Credit: saving account
Credit: Interest tax
2020203 Adjustment & Refund Payable
Adjustment and refund payable is the amount of excess cash difference obtained in the branch whether
the beneficiary may be known or unknown. This is a liability for the bank.
1. Entry:
Debit: cash
Credit: Adjustment and refund payable
2. Entry:
Debit: Adjustment and refund payable
Credit: saving account/other income
202020
Cheques Deposited Pending Clearance
4
The account is used to arrange the cheques submitted to it for clearing bank wise and presents it in
the clearing house to other banks. When there are more than one bank branch for a bank in the
clearing area, they would have a coordinating branch/ service branch to take care of presenting
the cheques to the clearing house. Upon receipt of the cheques/other instruments, they are
passed for payment if the funds are available and the banker is satisfied about the genuineness
of the instrument. The cheques that are unpaid are returned to the presenting bank through
another clearing called the Return Clearing. The realization of the funds occurs after the
completion of return clearing and by the absence of an unpaid cheque. The above account is
used to facilitate to identify manual and system errors.
1. Entry:
Debit: Ho account
Credit: Cheque deposited pending clearance
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2. Entry:
Debit: Cheque deposited pending clearance
Credit: account
202020
Blocking Inwards
5
The account enables a customer to withdraw the amount of money by going to a branch other
than the one s/he actually maintains his/her saving or current account deposits. The account is
blocked through telephone instruction from other branches. This manual system used for those
branches that haven’t a network connection. The paying branch has to send the outward
blocking ticket with the check/withdrawal voucher to the branch that maintains the customer
account.
1. Entry:
Debit: customer account
Credit: Blocking inwards
2. Entry:
Debit: Blocking inwards
Credit: HO Account
2020207 Blocked Current Account

2020209 Blocked Saving Account
2020211 Blocked Amounts Payable
2020212 Blocked Fixed time deposit
The Ethiopian court or some government organizations, which has the authority by law, may order the
Bank to block a customer account. Through the official letter, the amount from the customer account
should be transferred to one of the suitable account either on blocked current or saving or fixed time
deposit account payable. The Blocked Amount Payable account is used for non customer deposit
requested by them in order to have a deposit confirmation letter. The above accounts decrease when
the Ethiopian court or government organization, which has the authority by law, orders the release or
orders to pay to the third party.
1. Entry:
Debit: customer account/cash
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Credit: Blocked CA/SA/CDT
2020215 Court Cases Payable
The account used to record court orders that instruct the bank to deduct its employees account and
pays it to the beneficiary of the court order. The amount deducted from the salary of employees as a
result of court order and will be zeroed out when the money paid to the beneficiary of the court order.
1. Entry:
Debit: customer account/cash
Credit: Court case payable
202021
Dividend Payable
7
Dividends payable are dividends that a company's board of directors has declared to be payable to its
shareholders. Until such time as the company actually pays the shareholders, the cash amount of the
dividend is recorded within a dividends payable account as a current liability.
1. Entry:
Debit: Retained earning
Credit: Dividend payable
2. Entry:
Debit: Dividend payable
Credit: saving/current/Cash
Credit: Dividend tax or
2. Entry:
Credit: Paid in capital
202022
Deposits for Guarantees Issued
1
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Deposit for guarantee issued is a guarantee letter issued to a customer by receiving cash in advance
from a customer ensuring the liabilities of a debtor will be met. In other words, if the debtor fails to
settle a debt, the bank covers it. A bank guarantee enables the customers, to complete their obligation.
1. Entry:
Debit: cash/SA/CA
Credit: Deposits for guarantee issued
2. Entry:
Debit: Deposits for guarantee issued
2020223 Deposits for Import Clearance

2020229 Import Blocked Account
Deposit for import clearance is cash received in advance from a customer in the process on imports.
1. Entry:
Debit: cash/SA/CA
Credit: Deposits for import clearance
2. Entry:
Debit: Deposits for import clearance
2020225 Certified Payment Order Payable
A certified Payment order is type of check where the issuing bank guarantees the recipient of the check
that there is enough cash available in the holder's account to be transferred when the check is used and
also that the account holder's signature on the check is genuine.
202022
Exchange Payable to NBE
7
Exchange payable to NBE records the amount of exchange commission collected on behalf of the NBE.
The account is zeroed out at the branch when the amount collected is transferred to Head office Finance
also, the amount will be nil at HO when the all sum is paid to NBE.
1. Entry:
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Debit: cash/SA/CA/OBP/ODBP
2. Entry:
Debit: Exchange payable to NBE
Credit: Ho Account/NBE
202022
Credit inf. charge payable to NBE
8
Credit information charge payable account used to records charges collected from those customers who
are requesting loan from the bank.
1. Entry:
Debit: cash/SA/CA/
Credit: CIC
2. Entry:
Debit: CIC
Credit: Ho Account/NBE
202023
Employee Income Tax Payable
1
Employee income tax is a tax that governments impose on employee monthly income specified by the
law.
1. Entry:
Debit: various salary expense accounts
Credit: Income tax payable
Credit: SA
2. Entry:
Debit: Income tax payable
Credit: Ho Account/tax authority ac or CPO
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2020232 Cost sharing payable
The above account used to record the cost sharing payment to be made to the tax authority.
1. Entry:
Credit: Income tax payable
Credit: SA
2. Entry:
Debit: Cost sharing payable
Credit: Ho Account/tax authority ac or cash/CPO
2020233 Withholding Tax Payable

2020237 Value Added Tax Payable
Withhold tax is a tax to be collected from Supply of goods involving more than Birr 10,000.- and/or from
rendering of the following services involving more than Birr 500.- in one transaction or in one service
contract, such as, Consultancy service, designs written materials lectures, lawyers, accountants,
auditors, sales persons, advertisements and entertainment programs for TV and Radio, Construction
services, Advertisement services, rent for lease of machineries buildings and other goods including
computers, maintenance services, tailoring, printing, and insurance. The bank has to give withholding
tax receipt. The collected withhold tax should be transferred to Finance and account department.
1. Entry:
Debit: CA/SA/Cash/Expense account/PPE
Credit: withhold tax payable
Credit: SA
2. Entry:
Debit: withhold tax payable
Credit: Ho Account/tax authority ac /cash/cpo
202023
Pension payable
4
Pension payment made by the bank (11%) in favor of its employee and contribution of the employee
(7%) paid to the government in every month when the salary or any adjustments is made on salary of
the employee. The rate may vary year to year. The pension contributions collected by those branches sit
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in regions paid by them at the region. Those branches sit in Addis Ababa sent the amount through credit
summaries to Finance and accounts department.
1. Entry:
Credit: Pension payable
Credit: SA
2. Entry:
Debit: Pension payable
2020235 Interest Tax Payable
Interest tax payable account used to record the 5% of the interest paid to depositors account. The
amount deducted from depositors account and will be paid to tax authority.
1. Entry:
Debit: Interest expense
Credit: Interest tax payable
Credit: SA
2. Entry:
Debit: Interest tax payable
2020239 Business Profit Tax Payable
Business profit tax payable account used to record income tax collected from its annual profit every year
by using the prevailing tax rates 30%. The profit remains in the Profit and loss account until it is audited
by the external auditor. After, the audit process ended, Business profit tax will be paid to the tax
authority. The account used at HO level.
1. Entry:
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Debit: Profit and loss account
Credit: Business profit tax payable
2. Entry:
Debit: Business profit tax payable
Credit: Ho Account/tax authority ac or cash
202024
Dividend Tax Payable
0
Dividend tax is a tax to be collected on the payment of dividend to shareholders. Dividend tax is not
collected for the amount transferred to bank’s capital.
1. Entry:
Credit: Dividend payable
2. Entry:
Credit: Dividend tax or
2. Entry:
Debit: Dividend tax payable
Credit: tax authority ac or cash
202024
L/C Opening Charge Payable
1
L/C opening charge payable is an amount collected from customer account in connection with importing
activities of business men.
1. Entry:
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Debit: customer account
Credit: L/C Opening charge payable
Credit: Exchange payable etc…
202024
TTs Payable - Retransfer
4
TT Retransfer Local account used to record telegraphic transfers unpaid at beneficiary’s branch due to
various reasons will be transferred to remitting branch to be payable to the order of original message.
The remitting serial number should not be changes. No charges required from the amount.
1. Entry:
Debit: TT Received Manual
Credit: TT Payable Manual
2. Entry:
In case of transfer to remitting branch
Debit: TT Payable Manual
Credit: HO account
3. Entry:
In case of receiving from beneficiary branch
Debit: HO Account
Credit: TT Retransfer local
4. Entry:
In case of settlement to the order
Debit: TT Retransfer local
Credit: Cash
202024
TTs Payable - Local (System)
5
TTs Payable Local (system) records the value of telegraphic transfers using the Flex Cube system. These
transfers are made for those branches who are on online at the time of the customer paying/remitting
cash in return the remitter will have an instrument number in order the receiver to withdraw the cash
amount.
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The unpaid amounts which are not paid requested by the receivers are kept outstanding on this account
by the system itself. The lists of beneficiaries unable to collect the fund are available on BI Oracle
Reports. The BI Oracle outstanding balance and the TTs Payable Local system balance should be always
identical. There are some reasons that both accounts to become unequal. The two common mistakes
are the inter-posts and reversal entries with cancellations.
INIT 104 2020245 TTs Payable - Local (System) C 28,000.00

INIT 302 1010101 Cash D 28,038.00
INIT 302 4030146 Telephone, Telegram , C 10.00
INIT 302 4020104 Commission on MTs,TTs C 28.00
INIT 000 1071006 Branch-Receiving branch C 28,000.00
INIT 000 1071034 Branch-Sending branch D 28,000.00
202024
TTs Payable - Local (Manual)
6
TT Payable manual is the fastest mode of money transfer and is used for payments, Transfer of funds by
telegraph, telex, cable, from a bank to its branch authorizing the payment of funds to a specified
account or customer.
TTs Payable is the way of transferring funds from one branch to another through telephone by using
codes. TT Received manual transfers will apply for those branches unable to send their transfers due to
network failure or power interruption or for manual branches which has no connection at all. The online
branches can directly send their TT Transfers through Flex Cube system.
1. Entry:
In case of receiving the correct message
Debit: TT Received
Credit: TT payable manual
2. Entry:
Debit: TT Payable Manual
Credit: cash
2020247 MTs & TTs Payable - Foreign
It is an account used to record foreign Mail and Telegraphic Transfers payable to the beneficiary at the
counter of international banking division through mail message and or swift transfers.
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1. Entry:
Debit: MTs TTs Received
Credit: MTs TTs Payable Foreign
2. Entry:
In case of payment to customer
Debit: MTs TTs Payable Foreign
Credit: cash/ customer account
2020253 Stamp Duty Charges Payable
Stamp Duty charge Payable account is used to record 1% stamp duty charges from loan disbursed to
customers. The collected amount has to be transferred to HO Finance and accounts. The account is
zeroed out when the amount is paid at all.
1. Entry:
Debit: Loan account
Credit: stamp duty charge payable
Credit: Customer account
2. Entry:
Debit: stamp duty charge payable
Credit: CPO to tax authority/cash
20202
Audit Fee Payable
57
Audit Fee payable account records the amount of provision held for by the bank to be payable to
external auditors for the next fiscal period, and the account become zero when the amount is paid to
external auditors. The account is used by Finance and accounts department.
1. Entry:
Debit: Audit Fee expense
Credit: Audit Fee payable
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2. Entry:
Debit: Audit Fee payable
Credit: auditor company account/cash
202025
Annual Board Fees Payable
8
Annual Board fee payable account records the amount of provision held for by the bank to be payable to
Board Members after the dividend declared on shareholders meetings, and the account decreases
when the amount is paid to board Members. The account is used by Finance and accounts department
and the amount credited when the profit ascertained by external auditor.
1. Entry:
Debit: Profit and loss account
Credit: Annual Board Fee payable
2. Entry:
Debit: Annual Board Fee payable
Credit: Board members saving/current account/cash
20202
Telephone Payable
59
Telephone payable is a payable accounts used to record accrued telephone expenses at the end of each
year end due to the bills are not yet issued to the bank.
1. Entry:
Debit: Telephone expense
Credit: Telephone payable
2. Entry:
Debit: Telephone payable
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Credit: cash/cpo
202026
Provident Fund Payable
1
Provident Fund Payable account is used to keep provident funds collected from staffs until the provident
staff account is opened otherwise, the payment should be directly credit to PF account.
1. Entry:
Credit: Provident Fund payable
Credit: Various accounts
2. Entry:
Debit: Provident Fund payable
Credit: Provident Fund Saving account
20202
Staff Payable
63
Staff payable account is an account used to record amounts payable to staffs which have no saving
accounts, otherwise, the payment should be credited to staff account.
1. Entry:
Debit: appropriate account
Credit: Staff payable
2. Entry:
Debit: Staff payable
2020265 Margin Held Accounts
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4.13 Foreign Trade Services
4.13.1 Letter of Credit
It is a written undertaking by a bank given to the seller at a request and/or the instructions of the buyer
to make payment or to accept and pay bills of exchange (Draft) drawn by the seller up to a stated sum of
money within a prescribed time limit and against stipulated documents provided that the terms and
conditions of the credit are complied with.
The letter of credit is treated as import letter of credit on a buyer’s side and as export letter of credit on
a seller’s side.
Documentary Collection: - is a method under which banks handle a seller’s commercial documents with
or without financial documents in accordance with instructions received from the seller in order to
deliver the documents to buyer (importer) against payment and/or acceptance or against other terms
and conditions.
A swift is an electronic device that enables banks to transmit between themselves authenticated
financial messages. The swift message clearly states the beneficiaries name and other particulars to
effect payments. A after the opening of the letter of credit the following entries will be posted.
4.13.2 Advance Payment
It is a method under which a seller receives payment from buyer prior to shipment or the agreed upon
goods or rendering the agreed upon service.
4.13.3 Consignment basis Payment
It is a method of payment in which the title to the goods remains with the seller until an agent
(distributor) in foreign country sells them. Payment is made to the seller if and when the agent
(distributor) sells the goods.
4.13.4 Guarantee
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It is a letter of guarantee issued by an Issuing Bank/Guarantor is a written undertaking by the bank to
compensate (pay a sum of money) to the Beneficiary (local or foreign) in the event that the
Obligor/Principal fails to fulfill his/her/its obligations in accordance with the terms and conditions of the
guarantee/agreement/contract.
Importers are individuals, business organizations or government that buys goods/services from a seller
who resided in a foreign country. The LC opened by the importers at IBD or Branch and the payment
effected as per the terms and conditions of the letter of credit. The messages are transferred through
swift method.
Exporters are individuals, business organizations or government that buys goods/services from a buyer
who live in a local country.
4.13.5 Eligibility Criterions
Customers that request for the foreign trade service, except guarantee, should fulfill the following
criterions.
• Should maintain account within the bank.
• Should be in possession of valid trade license for import/export as appropriate or business
license or investment industry license or must exist in the list of budgetary government
organizations issued by National Bank of Ethiopia (NBE) or in case of non-government
organization, Certificate issued by Ministry of Justice, Regional Governments and offices
authorized by proclamation.
• Should have Tax Identification Number (TIN)
• Should not be reported as delinquent by NBE
4.13.6 Governing Rules
While processing TS request, care should be taken on adherence to International chamber of Commerce
(ICC) publications on uniform rules and practice of TS products so that the bank’s service gets
acceptance by foreign banks (See Annex 2 for list of major ICC publications). Directives and circulars
issued by the National Bank of Ethiopia as well as Abay Bank Trade Service policy and procedure should
be strictly observed. For calculation of charges and commissions, the TS Tariff should be applied and the
daily exchange rate that is issued by the Abay bank should be used for converting foreign currencies in
to Birr as well as to other currency taking due care for posting the specific entry on the same value date.
4.13.7 Documentary Credit Import L/C Issuance
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Receive the following items from customer
 Foreign exchange application for imports set of one original and four copies, duly completed,
signed and stamped by the customer will be used for approving the requested Foreign
Exchange. The letter should clearly specify the beneficiary name and address, purpose of the
request, Performa number, method of payment and amount in specified currency.
 L/C application duly completed and signed by the customer indicating
trade/investment/business/industry license number if applicable.
 Supporting documents required
 Verify the customer signature on the application against signature specimen maintained
 If the customer has L/C facility*, ascertain that insurance policies or certificates;
 Are issued in the name of the bank and the customer
 Clearly specifies method of shipment, amount, description of goods, and place/port of
departure and arrival as specified in the L/C application.
 *L/C facility limit is calculated on the net value (i.e., 100 percent value of an L/C less margin
held) and is not applicable on L/C issued for importing service.
 It is important to make sure that the importer is eligible to import the specific items under the
stated license in line with NBE’s directive and not listed in delinquent list.
 If the customer request for issuance of the L/C against L/C facility (refer Credit Procedure
manual), ensure that the facility is valid and there is enough balance of the respective limit that
covers the requested L/C amount. If there is a request for new facility or extension of an
existing facility, it should be forwarded to credit organ and handled in accordance with credit
procedure.
 If there is any inconsistency or deviation noted, communicate the customer wither directly or by
phone or e-mail as appropriate and advise her/him how to make the necessary correction.
 Register important details of the application like date, time of receipt, customer name, amount
and beneficiary’s name on registering sheet on PC
 Maintain paper file for each request along with the legal document maker at head office.
 Check the foreign exchange Application for the import (permit), L/C application the supporting
documents taking due care for compliance of the stated terms, condition and nature of request
against NBE’s directives and LCC rules.
 If ever thing is in order, assign number using the respective application (WAS).
Accounting entries
Debit Customer Account
Credit Exchange Commission Payable to NBE
Credit: Margin (100% of L/C value or approved & of L/C value, if there is L/C facility)
Credit: Commission and related charges
The following entry will be passed to the related Contingent Account by the L/C amount except for source of fund is
Donors and grant.
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Debit Outstanding Import L/C by Customer
Credit Outstanding Import L/C by Bank
N.B. One period is 90 days from the date of L/C issuance and part thereof.
4.13.8 Import L/C Amendment
Change of terms and condition of a letter of credit including its cancellation can be made by way of
amendment. In order to amend an L/C, there should be both applicant’s and beneficiary’s agreement.
If the amendment relates to goods description, amount, delivery term (trade term), expiry date,
supplier’s name and address and place of destination, prior to issuance of the amendment, the Abay
Bank S.C. should receive to consent of the beneficiary (seller).
 Check that requested amendments are in good order, i.e. are operative by that the change in
terms and conditions are not contrary to NBE directives and International Chamber of
Commerce (ICC) rules.
 Verify signature on the application.
 Verify requested amendments are in good order, i.e. are operative and are not contrary to NBE
directives and International Chamber of Commerce (ICC) rules.
 View and check the amendment message.
Accounting Entries
Debit: Customer Account
Credit: Exchange Commission Payable to NBE (if the amount is increased)
Credit margin if it is increases
Credit Commission and related charges
N.B. If there is amount decrease, proportionate exchange commission (the percentage applied on the decrease
amount) should be refunded to customer by debiting ‘exchange commission payable to NBE’ account.
The following entry will be passed to the related Contingency Account by the increased/decreased amount.
When the L/C’s amount is increased by this amendment,
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Debit Outstanding Import L/C by Customer
Credit Outstanding Import L/C by Bank
 When the L/C’s amount is decreased by this amendment,
Debit Outstanding Import L/C by Bank

credit Outstanding Import L/C by Customer
Make sure that all charges are debited from customer’s account.
• Transmit the amendment message and reimbursement authority message (if required) by S.W.I.F.T.
• Forward the amendment message and debit advice either to the concerned marketer or directly to customer, if
the customer is a corporate one.
4.13.9 Issuance of Shipping Guarantee under Import L/C
Sometimes, goods may arrive before the shipping documents are received by the bank and the importer
may require a banker’s guarantee in order to clear the goods. Such guarantees may e given against
payment of the remaining value of the letter of credit, where the L/C is opened with facility and after the
appropriate charges are collected as per tariff. However, care should be exercised, to ensure that the
delivery order contains the description of the goods stated in the letter of credit. In carrying out this
task, the following steps should be followed.
Receive the following from customer.
 Application letter duly completed and signed by the customer with undertaking to take full
responsibility for any consequences.
 Supporting documents such as copy of signed and certified commercial invoice, certificate of
origin, transport document and other necessary documents that are mandatory per NBE directives.
 Verify customer’s signature on the application.
Accounting Entries
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Debit: Customer’s Account
Credit: Handling Commission
Credit Margin held Account with unpaid amount
 Advise importer to collect the shipping guarantee and debit advice by phone or fax or Internet.
 When the customer comes to the outlet, signed and stamped by Branch/Outlet manager and
handover the shipping guarantee and charge advice to the customer.
N.B. Shipping guarantee should be stamped with a round stamp of the branch/outlet.
4.13.10 Import L/C Settlement
Handling of documents drawn under a letter of credit is known as L/C settlement. A letter of credit can
be settled fully or partially which in the latter case, the remaining balance should be cancelled after
ensuring from customer as well as the beneficiary that no shipment is expected for it.
Settlement of L/C Available by Sight Payment or Negotiation
 Receive documents from any courier service offices or Central Mail Service.
 Record document’s arrival date, document amount and L/C reference on register sheet register
form,
 Check the documents received against the respective L/C instrument, L/C amendment, if any, and
against each other for their inter-compliance using document checklist (annex 9) and make sure
that they comply with ICC rules. If there are any issues not considered in the related letter of
credit, check that they can be handled in compliance with NBE directives as well as ICC rules.
 Make sure that, if any, charges, commissions, deductions (additions) of amounts and single entry
amount are calculated by the system.
Accounting Entries
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 For Clean Documents
Case 1. When documents are presented under L/C opened without L/C facility.
Debit: Margin Held Account
Debit Customer Account (when settlement rate is greater than opening rate-by the difference in the converted
amount which is called as conversion difference)
Credit Correspondent Bank
Credit Customer Account (when settlement rate is lower than opening rate-by the difference in the converted
amount)
The following entry will be passed to the related Contingent Account for the document amount in local currency
(converted by the opening rate).
Debit: Outstanding Import L/C by Bank
Credit: Outstanding Import L/C by Customer
N.B. If source of fund is FCY and currency of the L/C is same with the account’s currency, there is no need to debit
or credit the conversion difference.
Case 2. When documents are presented under L/C opened with L/C facility.
In this case, the bank collected interest as per the bank’s tariff for the period from the date on which the
bank’s account is debited for document value up to the date on which customer’s authority for debiting
her/his account is received by the bank or up to the date on which documents are received by the bank
(if there is customer’s standing instruction to debit). The respective accounting entries are as follows.
i) Up on presentation of documents,
Debit Margin Held Account
Credit Advance in Import Bills (it is an interest bearing account)
Credit: Correspondent Bank
Pass the following entry on Contingent Account for the document amount in local currency (converted by the
opening rate)
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Debit Outstanding Import L/C by Bank
Credit Outstanding Import L/C by Customer
If the customer has given standing instruction/prior authority to debit her/his account, the following
entries should be posted.
Debit Margin Held account
Debit Customer’s Account
Credit Correspondent Bank
Credit Interest, if any
When the customer’s (applicant’s authority is received to debit its account for the advanced amount
and related interest or 45days have elapsed from date of advice of advance is given to customer.
Credit: Advance on Import Bills
Credit Interest Income
4.13.11 Export
Sales contract approval
 Receive indicative price of goods

 Provide price information of exportable items to the exporter upon her/his request.
 Receive Sales contract (via web or from premises for high valued customers as
corporate). The contract can be in a form of fax message, E-mail, Performa invoice or
written agreement. If the customer is new to the bank, obtain customer information as
required in the respective form (annex 4) so that customer information file will be
created at CPC.
 Check the details against check list
 If the quoted price is lower than the indicative price advice the customer to present
sound explanation and fill price information slip. If the price is lower than the local price,
do not approve the contract. (With NBE)
 If the contract is in good order, approve it by putting round stamp of the bank.
 Record information about the contract like price, quantity of goods, mode of payment,
shipment date, destination and exporter’s and importer’s name on system and assign
reference number
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 Hand over the approved sales contract after retaining a copy to the customer or deliver
it to the customer’s premises (if the customer is high valued as corporate) and put all
documents in a file.
4.13.12 Advance of Export L/C
If the message is received via SWIFT, check that it is authenticated. If the L/C is received via courier
mail, verifies the signature against signature specimen available on system. If the signature differs
from the specimen inform the issuing bank immediately. Or if the signature on the letter of credit is
not available with Abay Bank S.C., inform the issuing bank to authenticate the message through one
of our correspondent bank to providing name of our correspondent banks.
If the L/C is received via mail or courier, record L/C’s arrival date, amount, L/C reference,
beneficiary’s name and issuing bank’s name on registering
N.B. Every export L/C should specify reimbursing bank.
4.13.13 Export L/C Amendment
1. Receive an amendment message via SWITF or from central mail service or any courier
service offices
2. If the amendment message is received via courier or mail, verify the signature there on
against signature specimen available on system.
3. If the amendment message is received via courier or mail, record the amendment
message’s arrival date, amount, L/C reference and issuing bank’s name on registering
N.B. If the amendment is rejected by the exporter in writing, the issuing bank should be advised immediately.
Export permits issuance.

When the customer is ready to ship goods other than coffee, requests the bank for approval of
export by presenting the following documents as per NBE directive at outlet/branch:
 Bank permit for export of goods set of one original and three copies- duly completed,
signed, stamped; and indicating trade license number and TIN number
 Three copies of invoices duly completed, signed and stamped. The invoices could be
certified by chamber of commerce if the L/C requests so.
1. Check that:
 The content of the document are as per NBE directive,
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 There is already approved sales contract and a letter of credit advised for this export,
 If everything is in order, enter information like name of exporter, contract number,

amount, goods
 Description and price on registering sheet
 Approve the permit by signing on the space provided and hand the ‘customer copy’ and
‘customs copy’ over to the customer.
 Keep the NBE copy for further reporting and authorized copy with the supporting
documents in a file.
N.B. Clearing agents might send transport documents directly to the bank.
 Check against checklist that all documents listed on the covering letter of the customer
are enclosed If there is any missing document, inform the customer on the immediately.
 Verify signature on the indemnity agreement.
 Check that the customer has already obtained the related export permit from the bank.
 Register the L/C number under which the document is [resented, name of the exporter,
amount, date and time of receipt of documents
Accounting Entries
1. When documents are clean and the customer instructs the bank to credit document value to Birr
account, upon negotiation of documents (ODBP-outward documentary bills purchased),
Debit: un-cleared effect foreign –ODBP
Credit customer account (by need proceed), or
Credit: Loan account if financed by Abay Bank S.C as per instruction of credit approving
Credit : Courier change
II. When documents are clean and the customer instructs the bank to credit document value to FCY
account (i.e. Retention account), upon negotiation of documents (ODBP- Outward Documentary
Bills purchased),
Debit: Un-cleared Effect Foreign-ODBP
Credit: FOREX Retention payable Account (of the customer by net proceed)
Credit: Courier Charge
III. Upon settlement of proceeds (when we are paid by the reimbursing bank) and if, upon negotiation
of documents, document value has been credited to customer’s Birr account,
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Debit Correspondent Bank
Credit Customer account (When the proceed collected is lower than negotiated document value and/or for
any correspondent bank charge, if any)
Credit Un-cleared Effects-Foreign – ODBP
N.B. If there is any conversion differences debit/credit Loss/Gain account.
IV. Upon settlement of proceeds (when we are paid by the reimbursing bank) and if, upon negotiation of
documents, document value has been credited to customer’s FCY account (i.e. Retention account).
Debit Correspondent Bank
Debit Customer Retention Account (When the proceeds collected is lower than negotiated document value
and/or for any correspondent bank charge, if any)
Debit FOREX Retention Payable Account (of the customer)
Credit Un-cleared Effects – Foreign – ODBP
Credit FOREX Retention account (of the customer)
V. When documents are discrepant (ODBC –Outward Bills of Collection-under L/C),

The following entry will be passed to:
Courtier’s Agent Account for courier charge

Credit Courier charge
VI. When discrepancies are accepted and the issuing bank pay us,
Debit Correspondent account

Credit: Customer Account (by net proceed), or
Credit Loan account, if financed by ABAY BANK/other bank, and
When documents are drawn under letter of credit is available by acceptance the customer is entitled to
Acceptance payment L/C facility.
Debit Advance on Export Bills ---- Customer name
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Credit Customer’s account (Birr account, by the approved percentage of document value)
Credit Courier Charge
2020249 Miscellaneous Payable

2020267 Others Payable
The amount kept in the above account for payments or transactions that cannot be classified under any
of the sub heading of sundry creditor.
MT-103 Intermediary GL account used at Head office Finance and Accounts department in order to
facilitate the incoming cheques clearance.
Initial Account recording
When cheque sent on special clearance DB-Bank
Then DB-Bank Accepted & Responded
Entry at National Bank of Ethiopia

Debit: DB-Bank Payment and settlement (NBE)
Credit: Abay -Bank Payment and settlement (NBE)
Entry at Abay Bank System

Debit: Payment and settlement (Mirror Account0006510000003012)
Credit: MT-103 Intermediary GL
Settlement
Liquidation
Debit: Branch account system MT-103 Intermediary GL
Credit: CA/SA
Liquidation
Debit: MT-103 Intermediary GL
Credit: HO system ac
Sometimes, the system is unable to credit to customer account because of errors committed in customers account
written on the system (mismatch). In this case, human interference is mandatory.
The entry manually processed through

Credit: Branch Ac
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MT-202 Intermediary GL account used at Head office Finance and Accounts department in order to
facilitate transfers between Abay Bank and other banks.

Debit: X-Bank- Payment and settlement (NBE)
Credit: Abay -Bank Payment and settlement (NBE)
Entry at Abay Bank System
Debit: Payment and settlement (Mirror Account0006510000003012)
Credit: MT-202 Intermediary GL
Settlement
Entry at Ac holder Branch
Credit: Issue Account/Sundries Income
4.14 NBE Intermediary GL
In this category, the account is used to facilitate the transactions between NBE , other banks, Eth switch
with our bank.
202027
NBE CREDIT INTERMEDIARY GL
3
202027
Special Clearance Payable
4
202027
Eth-switch payable
6
202027
Eth-switch charge payable
7
2020274 Special Clearance Payable
It is another form of account used to facilitate outgoing transfers through special cheque clearance
between Abay Bank and other Banks.
Entry at Abay X-Branch

Debit: Customer account
Credit: Head office
Entry at Finance when special cheque presented
Debit: Special Clearance Payable
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Credit: Payment and settlement (Mirror Account0006510000003012)
Settlement
Entry When credit summary reached at Finance
Debit: Branch Ac
Credit: Special Clearance Payable
Debit: Abay-Bank- Payment and settlement (NBE)
Credit: X -Bank Payment and settlement (NBE)
2020276 Eth-switch payable

2020277 Eth-switch charge payable
Depositors in Ethiopia can cash their account from any ATM even if it is not operated by the bank where
they have deposited their savings. It is processed using the national switch system, ET Switch S. C., The
above accounts are used to facilitate the withdrawal of principal amounts and charges respectively.
Eth-switch payable is a payable amount in case of cash paid to our bank customers at other banks ATM
and will be settled through Eth-switch.
1. Entry:
Debit: Abay bank customer account
Credit: Eth-switch payable
Credit: Eth-switch charge payable
2. Entry:
Debit: Eth-switch payable
Debit: Eth-switch charge payable
Credit: Payment and settlement
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4.15 Borrowing
Include all direct money borrowing from NBE, Domestic Banks and other sources in exchange for an
obligation to pay back within specific payment period. Borrowings can be acquired with prior approval
of the president. Borrowing will further classified into short term & long term.
203000
BORROWINGS
0
203020
LONG TERM BORROWINGS
0
Borrowing will have the following entries:
1. Entry:
Debit: cash/customer /payment and settlement account
Credit: Domestic bank x , NBE,…
2. Entry:
Debit: Domestic bank x
Debit: Interest payable on borrowing
Credit: Payment and settlement/cash
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4.16 EQUITY
Equity is defined in the IASB's Framework as the residual interest in the entity's assets after deducting all
its liabilities. The term 'equity' is often used to encompass an entity's equity instruments and reserves.
Equity is given various descriptions in the financial statements. Corporate entities may refer to it as
owners' equity, shareholders' equity, capital and reserves, shareholders' funds and proprietorship.
Equity includes various components with different characteristics.
Determining what constitutes an equity instrument for the purpose of IFRS and how it should be
accounted for falls within the scope of the financial instrument standard IAS 32, 'Financial instruments:
Presentation'.
Equity instruments (for example, issued, non-redeemable ordinary shares) are generally recorded as the
residual after recording the recognition or de-recognition of assets or liabilities arising on the equity
issue (the proceeds of issue) and after deducting directly attributable transaction costs. Equity
instruments are not re-measured after initial recognition.
Changes in equity result from:
- the issue of equity share capital and equity instruments (including derivatives on own equity);
- contributions from owners;
- the repurchase of equity instruments;
- transaction costs directly attributable to the issue or repurchase of equity instruments;
- equity-settled share-based payment transactions;
- actuarial gains and losses on defined benefit pension plans;
- distributions to owners;
- statutory capital maintenance requirements;
- policy changes and error corrections;
- currency translation gains and losses;
- revaluations of property, plant and equipment;
- tax on items credited or charged directly to equity;
- profit or loss for a financial year; and
- Fair value adjustments on financial assets and cash flow.
3000001 Paid Up Capital
Paid-up capital is the amount of money a company has received from shareholders in exchange for
shares of stock.
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Paid-up capital is only created when a company sells its shares on the primary market directly to
investors.
When shares are bought and sold between investors on the secondary market, no additional paid-up
capital is created because the proceeds of those transactions go to the selling shareholders, not the
issuing company.
Paid-up capital represents money that is not borrowed. A company that is fully paid-up has sold all
available shares, and thus cannot increase its capital unless it borrows money by taking on debt or gets
authorization to sell more shares. A company's paid-up capital figure represents the extent to which it
depends on equity financing to fund its operations. This figure can be compared to the company's level
of debt to assess if it has a healthy balance of financing given its operations, business model and the
prevailing standards in its industry.
1. Entry:
In case of selling shares
Debit: cash/customer account
Credit: Paid up capital
Credit: Premium
300001
Premium Capital
9
Value of share in excess of par value of a share apportioned for incidental expenses in connection with
sales of shares is kept in this account.
3000016 Donated Capital
Asset given to the bank as a gift/donation in the form of cash or in kind will be recorded under this
account.
1. Entry:
In case of donation
Debit: cash/asset
Credit: Donated capital
3000004 General Reserve
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When any amount is kept separate by a company out of its profit for future purpose then that is called
as general reserves.
In other words, the general reserves are the retained earnings of a company which are kept aside out of
company’s profits to meet future (known or unknown) obligations. General reserves are the part of
Profit and Loss Appropriation Account. It is a free reserve which can be utilized for any purpose after
fulfilling certain conditions.
On the basis of above definitions general reserve may be utilized for following purposes:-
 To settle any unknown future contingencies

 To increase the working capital
 To strengthen the financial position of the company
 To pay dividends to shareholders more than specified limits
 General reserves kept to offset some specific future losses.
 General reserves include the money kept aside for litigation or revaluation.
3000007 Legal Reserve
This account records the amount of fund apportioned from the yearly profit of the Bank in accordance
with the directives of the National Bank of Ethiopia which banks require to retain 25% of their yearly net
profit as legal reserve. The percentage is to be reduced to 10% after the amount in the legal reserve
equals to the initial capital.
1. Entry:
In case of transferring
Credit: Legal reserve
3000010 Retained Earnings/Loss
Annual net profit/loss of the bank after tax provision, legal reserve & board remuneration fee is kept
under this account until the general assembly decides for distribution/dividend.
1. Entry:
In case of transferring
Debit: Profit and loss
Credit: Retained earning
300001
Profit/ Loss Account
3
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This is an account opened and closed at year-end closing of both Finance & Accounts Department and
Branches to close income and expense accounts to ultimately determine profit or loss for the year.
Moreover, difference between total income and total expenses when preparing an interim financial
statement also reflected on this account.
1. Entry:
In case of profit transfer to HO
Debit: Profit and loss
Credit: Ho account
2. Entry:
In case of Loss transfer to HO
Debit: HO Account
Credit: Profit and loss
4.17 Income Accounts
Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other than those
relating to contributions from equity participants (IASB Framework).
Income is therefore an increase in the net assets of the entity during an accounting period except for
such increases caused by the contributions from owners. The first part of the definition is quite easy to
understand as income must logically result in an increase in the net assets (equity) of the entity such as
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by the inflow of cash or other assets. However, net assets of an entity may increase simply by further
capital investment by its owners even though such increase in net assets cannot be regarded as income.
This is the significance of the latter part of the definition of income.
4010000 INTEREST INCOME

4010100 INTEREST INCOME ON LOANS
4010200 INTEREST INCOME ON OVER DRAFT ACCOUNTS
Interest income is the amount of interest that has been earned during a specific time period. This
amount can be compared to the investments balance to estimate the return on investment that a
business is generating.
The amount of interest may have been paid in cash, or it may have been accrued as having been earned
but not yet paid. In the latter case, interest income should only be recorded if receipt of the cash is
probable, and you can ascertain the amount of the payment to be received.
Interest income is earned from investments that pay interest, such as in a savings account or certificate
of deposit. It is not the same as a dividend, which is paid to the holders of a company's common or
preferred stock, and which represents a distribution of the issuing company's retained earnings. Also,
the penalties paid by customers on overdue accounts receivable may be considered interest income,
since these payments are based on the use of the company's funds (e.g., accounts receivable) by a third
party (the customer); some companies prefer to designate this type of income as penalty income.
Interest income is recorded within the interest income account in the general ledger. This line item is
typically presented separately from interest expense in the income statement.
In a bank, the excess amount of interest earned on investments over the amount paid out for deposits is
referred to as net interest income. In general, Interest income is the amount of interest return that has
been earned on financing, investment on securities and deposit on other local & foreign banks for
specified time period & rate of interest. Interest income calculated at the end of each month on the
outstanding balance of various term loans under each economic sector will be kept in the related
income account. However, Interest income earned on non-performing loans (NPL) shall be kept under
memorandum account.
401030
INCOME ON SURPLUS FUND
0
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4010307 Interest Earned on Government Bonds
4010310 Interest Earned on Deposits With Domestic Banks
4010313 Interest Earned on Correspondent Banks
Income earned on funds which are not deployed on major activities of the bank like securities, deposits
on other banks and returns on investment on other companies are recorded on this account category.
Income earned on purchase of treasury bills which is the difference between discounted & face value of
the Treasury bill is recognized under this account

Interest income earned on purchase of five years National bank of Ethiopia (NBE) bills are recorded
under this account category.
401030
Interest Earned on Government Bonds
7
Interest incomes earned on purchase of bond instruments issued by the government is held under this
account.
1. Entry:
In case of interest accrual
Debit: Interest receivable on……
Credit: Interest Earned on…..
2. Entry:
In case of redemption
Debit: Cash/Payment and settlement account
Credit: Interest receivable on….
Credit: NBE Bills, Treasury Bills, Government Bonds,….
4020000 COMMISSION INCOME

4020100 COMMISSION INCOME - LOCAL
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4020107 Commission on Letter of Grantee Issued
Commission Income is fee charged for service in facilitating a transaction or it is Charges collected from
customers for rendering some specific banking service as per terms & tariffs of the bank. Based on
transaction commission income also classified as Local & foreign.
402010
Commission on CPOs
1
Commission collected from CPO (Casher`s payment ordered) issued by order of the customer is
recognized under this account category.
1. Entry:
In case of collecting commission
Credit: CPO Issued
Credit: Commission on CPO
Commission collected from Mail, Telegraph and demand draft transfer order of the customer is
recognized under this account category.
1. Entry:
Credit: MT TT DD Payable
Credit: Commission on MT TT & DD
4020107 Commission on Letter of Grantee Issued
Commission collected from issuance of letter of guarantee is recognized under this account category.
1. Entry:
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Credit: Commission on L/Guarantee issued

Commission income collected from charge of un-cleared effects transaction like Blocking is recognized
under this account category.
1. Entry:
Credit: Commission on un-cleared effect
Commission collected from service rendered on point of sale (POS) is recognized under this account
category.
1. Entry:
Credit: Commission on POS
4030000 OTHER INCOME

4030100 OTHER INCOME DETAILS
Other income is income generated from other than the main line of the business operations and
activities of the bank.
40301
Bad Debts Collected
01
Account opened to record balance of debtors which is reinstating and collected after the assets have
been written off.
1. Entry:
In case of bad debt collecting
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Credit: Bad debt collected
4030102 Dividend Earned on Local Investment
Dividends earnings on investments in other local companies are reported in this income account
category.
1. Entry:
In case of dividend earned
Credit: Dividend earned on local investment
403010
Branches L/C Opening Charges
4
Charges collected from customers of the bank for LC opening process are recorded under this account.
1. Entry:
In case of LC opening charges
Credit: Branches LC Opening Charges
4030107 Cash Surplus
Surplus cash found and credited to adjustment and refund payable account which is not claimed shall
transfer & kept under this account at the end of each month.
1. Entry:
In case of recognizing
Credit: Cash Surplus
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Charges collected on foreign transactions on behalf of correspondent Banks are credited to this account.
Note that the actual charges claimed by correspondents are settled by the debit of General Expenses-
Correspondent Charges.
1. Entry:
Credit: Correspondent charges
403011
Gain on Disposal of Assets
3
The gains arising from the disposal of assets at higher price than their book value are credited to this
account.
1. Entry:
Credit: Asset account
Credit: Gain on disposal of assets
4030119 Gain on Foreign Exchange Valuation
Gains resulting from daily rate fluctuation on accounts denominated in foreign currency valued at the
end each month are credited under this account.
1. Entry:
Debit: FCY
Credit: Gain on FCY revaluation
40301
Insurance
22
Any excess amount remaining after offsetting the book value from money paid by insurance companies
for indemnity of damage or loss of vehicles or other property is credited to this account. Salaries and
medical expenses of our staff refunded by insurance companies, whenever such staff is hospitalized
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because of accidents are also credited to this account as the actual expenses are charged to the Banks
expense account earlier.
1. Entry:
Debit: cash/customer ac
Credit: Insurance
4030125 Legal
Cost awarded to the Bank by courts in loan cases other than the arbitrary amount for the expenses
incurred by the Bank are to be posted in this account. City and outlying branches whose loan cases are
being handled by Head Office attorneys should credit such costs to Head Office account.
1. Entry:
Credit: Legal
4030128 Money Bags
Income from sales of empty money bags/containers are recorded under this account.
1. Entry:
Credit: Money bag
4030
Postage
131
Balance collected from customers to cover mail charges on dispatching CPOs, Uncleared cheques, and
others are credited to this account.
1. Entry:
Credit: Postage
40301
Rent Income
34
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Rent income collected from lease of banks assets are credited to this account.
1. Entry:
Credit: Rent income
4030137 Safe Deposit Boxes
Income derived from rentals of safe deposit boxes as well as charges made for safe keeping of seated
items, where individuals' lockers do not exist, is credited to this account.
1. Entry:
Credit: safe deposit box
4030140 Service Charge - Local
The cost of losing saving booklet, service charge on special clearance, insufficient fund
Cheques, inactive current account, duplicate customer advice and duplicate statement of accounts and
etc. are credited to this account.
1. Entry:
Credit: service charge local
403014
Service charge on ATM
1
Service charge collected on ATM transaction as per tariffs of the bank are credited to this account.
1. Entry:
Credit: service charge on ATM
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4030142 POS Service charge
Service charge collected on POS transaction as per tariffs of the bank are credited to this account.
1. Entry:
Credit: service charge on POS
403014
Service Charge - Foreign
3
Amount of service fees charged related foreign transaction as per terms & tariffs of the bank are
credited to this account.
1. Entry:
Credit: Service charge foreign
403014
Service charge on Eth-switch
4
Service charge collected on Eth-switch transaction as per tariffs of the bank are credited to this account.
1. Entry:
Credit: Service charge of eth switch
403014
Telephone, Telegram , Telex & Fax
6
This account is credited with any charge collected from customers for reimbursing cost of telephone,
telegram and telex.
1. Entry:
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Credit: telephone, telegrams telex..
4030149 Estimation & Inspection Fees
The amount of fees collected for the estimation and inspection services provided on properties offered
as collateral for the various financing facilities are credited to this account.
1. Entry:
Credit: Estimation and Inspection fees
40301
Processing Fees
50
The amount of fees collected for processing loan facilities are credited to this account.
1. Entry:
Credit: Processing fees
403015
Penalty Fee For Bounced Cheques (5%)
2
This account is credited when a 5% penalty fee is collected from customers for bounced cheques
are credited to this account.
1. Entry:
Credit: Penalty fees for bounced cheque
403015
Standing instruction charge
6
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Service charges collected for standing instruction given by customers are credited to this
account.
1. Entry:
Credit: Standing instruction charge
40301
Swift charge
58
Charges collected from customers for SWIFT transfer services are recorded under this account.
1. Entry:
Credit: Swift charge
4030155 Sundries
Income generated from various activities of which are miscellaneous, non-recur and that do not
conveniently fall under any of the above income accounts are credited to this account.
Income transactions general procedures
• Interest income, Service charges & Commission income collected from various activities shall be
as per terms &tariffs of the bank and shall be supported with proper source documents.
• Branches and respective head office department shall insure interest calculation of the system.
• Branches and respective head office department shall make sure that incomes are recognized in
the time when they are earned.
• Interest income earned on NPLs shall be reversed and keep under memorandum account with
proper documentation.
4.18 Expenses Accounts
500000
EXPENSE
0
501000
INTEREST EXPENSE
0
501010 INTEREST EXPENSE DEMAND DEPOSITS
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0
Expenses are expired portion of assets incurred to run bank’s business operation or generate projected
income of the bank.
Transactions or events that increase expense accounts are recorded in the debit side of the account and
transactions or events that decrease the account are recorded in the credit side of the account. Since
expense are nominal accounts it will be closed to profit/ loss account at the end of each accounting
period. Moreover, under chart of accounts of the bank expense accounts are grouped in to Interest
expense, Provision expense, Salary & Benefits, General expense and other expense accounts.
5010200 INTEREST EXPENSE - SAVING DEPOSITS
Interest expense refers to the expenditure rewarded to depositor or lender of the bank for using their
money in respect to pre sated terms & contract agreements.
Interest paid to demand deposit account holder of the bank. Usually, demand deposits are non-interest
bearing accounts but for some exceptional cases the bank may pay interest on demand deposit with the
consent of the president. The bank pays interest expense on demand deposit on monthly bases and
expenses are recorded under respective customer class base.
It refers to the 5% interest paid to saving account holder of the bank. The bank pays interest expense on
saving deposit on monthly bases and expenses are recorded under respective customer class base.
It refers to the interest paid to fixed time depositors on the basis of pre agreed interest rate. The bank
accrues interest on monthly but it will paid up on maturity .expenses are recorded under respective
customer class base.
It refers to the interest paid to lender of the bank (National Bank of Ethiopia, Domestic Banks, and Other
financial institution) on the basis of pre-stated interest rate & contact agreement. The bank accrues
interest on monthly and expenses are recorded under respective borrower class.
1. Entry:
Debit: Interest expense on …..
Credit: Interest payable on ….
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5020000 PROVISIONS EXPENSES
Provisional expense held to cover possible losses/un-collectability of loans and other assets of the bank.
The bank calculates provision on quarterly basis.
It is provisional expense associated with possible loss of Loan & advances of the bank held in accordance
with NBE directive.
1. Entry:
Debit: Loan Provision expense
Credit: Loan Loss reserve
5020200 OTHER PROVISIONS

5020201 Other receivable Provision expense
It is provisional expense associated with possible loss of receivables of the bank other than loans &
advances held in accordance with NBE directive.
1. Entry:
Debit: Other receivable Provision expense
Credit: Other receivable provision
503000
SALARIES AND BENEFITS
0
503010
SALARIES
0
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Monthly salary & related benefits paid to employee as per as per human resource policies and benefit
package of the bank. Salary & benefit shall be paid with net off employees’ obligations, contributions
and other deduction.
5030100 SALARIES
Managerial Salary is an expense incurred in related to basic salary paid to managerial employee of the
bank is recognized under this account.
Non managerial Salary expense incurred in related to basic salary paid to non-managerial employee of
the bank is recognized under this account.
Overtime payment is a Payment for duties performed by employee beyond working hours of the bank
in the holidays, weekends and extra normal hours of the day are account under this.
Bonus on managerial staff is an extra benefit given by the bank to managerial staffs as reward for past
performance with the intent of motivating employee in prospect periods
Bonus for Non managerial staff is extra benefit given by the bank to non-managerial staffs as reward for
past performance with the intent of motivating employee in prospect periods
503020
BENEFITS
0
Cash Indemnity allowance is an allowance allotted to cover possible cash shortages of teller and
cashiers are kept under this account. The amount is deposited to cash indemnity saving accounts
opened in the name of each teller and cashier until it reaches a fixed sum. Once the fixed sum is
attained, it is paid to the staff along with the monthly salary less tax.
Disturbance allowance is a payment made to staff of the bank to cover disturbance costs in related to
transfers to/from Head Office or branches located in two separate cities is debited to this account.
Funeral expense is an amount given to the family of deceased employees to cover funeral expense is
charged to this account.
Housing allowance is an amount paid to cover house rent expense for entitled member of the bank are
recorded under this account.
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Acting allowance is an allowance payments to employee who are temporally assigned to act on higher
managerial position are recorded under this account.
Hardship allowance is an allowances paid to employees who are working in difficult working conditions
are recorded in this account.
Shifting allowance is an allowance paid to employees of the bank who works extra time on shifting base.
Representation allowance is allowance to be paid to Top Managements, Department Managers, Deputy

Managers, Managers, Division Heads, Assistant Managers and other deserving officers of the Bank is
charged to this account.
Maternity pay is an amount paid to female employees of the Bank who give birth is recorded to this
account.
Medical expense is an approved cost of medical treatment and hospital bills for both managerial and
non-managerial staff is record to this account.
Pension and Provident fund contribution made by the bank on gross salary of permanent employees is
record to this account.
Residential rent is the rent expense which the Bank pays for those staff that is provided with free
furnished quarters. The staff do not draw the cash like "Housing Allowance" but the rentals are payable
direct to the lassoers.
Staff insurance is an insurance premium paid to renew the existing one or to purchase new insurance
policies for employee of the Banks is recognized under this account.
Severance pay is money paid as compensation on the basis of length of service to an employee whose
job ceases to exist is debited to this account.
Training and tuition fees and any other training expenses incurred to train the Bank's employees both
locally and abroad are charged to the above account; this includes seminar expenses as well.
Uniforms are cost of suits, dresses, ties, shirts, overcoats, overalls, shoes, boots, umbrella etc. supplied
to non- clerical and clerical employees entitled to the benefit are debited to this account.
Leave payment account is used to record unutilized leave of employees computed and paid upon
termination of employees is recorded under this account.
Transportation and fuel allowance is an allowance paid to cover transport & fuel expenses of entitled
employees of the bank are debited to this account.
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Parking and car wash expense incurred in connection with washing and parking charges of Bank’s
vehicles are recognized under this expense account.
Utility allowance is an allowance paid by the Bank for electricity, water, and telephone charges for
entitled staff are charged to this account.
Other benefits are benefits paid to employees of the bank which are miscellaneous, non-recur and that
do not conveniently fall under any of the salary and benefit accounts specified above are debited to this
account.
Salaries & Benefits procedures
 Salaries, Benefits and allowances paid by branches and head office shall be on the basis Human
management procedure and data.
 Unless described with circular all salary and benefits shall be paid with payroll.
 Branches, Finance & accounts and Human resource should settle payroll deductions accruing to
third parties such as Income tax, Pension and cost sharing as per standard time.
 Outstanding salary advances shall be settled by way of deductions from payroll on every month.
 Costs like training & education and uniform incurred will be covered by head office Human
resources management.
 Bonus expense paid to staffs shall be absorbed by payer branch or head office.
504000
GENERAL EXPENSE
0
General expenses are expenses other than those expenses identified as salaries and benefits and
interest are charged to various subsidiary accounts under this heading.
Depreciation expense is amortization of fixed assets cost over useful economic life of the assets.
Depreciation expense shall be recorded on separate ledger for which each fixed asset account is booked.
Depreciation account is maintained at Head office level.
Maintenance and Repair expense is costs of parts and related labour costs in the maintenance and
repair of various assets and software’s born by the bank are debited under this account. However,
maintenance cost of assets which enhance useful life of the asset shall be capitalized.
Maintenance & repair expense of premises expense paid by the bank are debited under this account.
Maintenance & repair expense of office & other equipment expense paid the bank are debited under
this account.
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Maintenance & repair expense of Furniture & Fittings expense paid by the bank is debited under this
account.
Maintenance & repair expense of Motor vehicles expense paid by the bank are debited under this
account.
Maintenance & repair expense of computer & software expense paid by the bank are debited under
this account.
Consultancy & Service fees expense incurred in relation to consultancy and other advisory services
rendered to the bank by outsiders are debited to this account.
Audit fees Annual audit fees paid to external auditors are debited under this account.
Consultancy fees paid to consultants and advisors of the bank are debited under this account.
Director’s fees: Monthly fees paid to board of director’s member as per NBE directives are debited to
this account.
Legal Fee Expenses incurred by the Bank in connection with debt recovery or other court cases for
which there are no official receipts available, part time attorneys' salaries and legal expenses incurred
on behalf of the Bank are debited to this account.
Municipality Fees charge in connection with sanitation, billboard & box light and other annual
municipality fees paid by the bank are debited under this account.
Membership Fees paid by the bank for membership in any organization, for example, bankers
association, chamber of commerce, etc. should be debited to this account.
License fees paid to trade and business license charged by respective organ are debited under tis
account.
504040
OTHER GENERAL EXPENSES
0
Advertising and publicity
Costs of advertising, promotion, sponsorships and publicity in newspapers, magazines, periodicals or

cost of brochures, radio or television effected to promote bank`s business, bid announcement and
vacancy advertisement are debited to this account.
Cleaning & Sanitations
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The cost of such cleaning supplies as brooms, soaps alcohol and detergents purchased to cleaning are
debited to this account.
Correspondent charge
Claims received from correspondent banks in respect of charges are debited to this account.
Donation & contributions
Donation and contribution made to governmental and non-governmental organizations with the
intension of charity or welfare purpose are debited to this account.
Entertainment
Expenses incurred in connection with recreation and refreshments of banks’ staff are debited to this
account.
Inaugurations
Inauguration expenses incurred at the time of opening a new branch office, new Bank building or new
service product by way of refreshments, furniture rentals, advertisements, allowances paid to officials
and invited guests, cost of printing booklets and pamphlets should go to this account.
Insurance
Amortization of insurance expense paid to renew the existing one or to purchase new insurance policies
for property and money insurance are debited under this account.
Land and Building tax
The annual land and building taxes levied by the municipalities are debited to this account.
Money Bags
Cost of empty moneybags purchased by the banks and the value of bags supplied with coins by National
Bank of Ethiopia are debited to this account.
Motor vehicles inspection & circulation fee
The annual inspection and circulation fees of the bank's service vehicles are debited to this account.
Per-diem & Travel
Travelling expenses and hotel accommodations paid to staffs of the bank on duty travels is debited to
this account.
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Meeting Accommodations
Meeting accommodation costs like meeting hall rent, meeting refreshment costs and other related costs
incurred to participate or to facilitate meetings are debited to this account.
Fuel & Lubricant
Fuel, oil, lubricant and other related expenses used up by bank`s vehicles are debited to this account.
Postages
Charges for mail service, annual rentals of post office box and safe deposit boxes are debited to this
account.
Office Rent
Monthly rental expense for office premises, warehouses and ATMs placement used by the Bank are
debited into this account.
Revenue stamps
Cost of revenue stamps affixed on such documents as applications made to government bodies on
behalf of the Bank or on lease agreement, etc., is debited to this account.
Supplies, stationary & printing
Cost of supplies & stationery items which can`t be recognize as fixed asset as well as cost of printing,
photocopying and duplicating charges is debited to this account. Stationery items include all types of
forms and office supplies which have like erasers, perforators, rulers, ink Photostat paper, staplers, etc.
Subscriptions
The payments of periodic subscription charges to issuers of newspapers, magazines and telephone lines
are debited to this account.
Telephone, Telegram, Telex& Fax
The values of periodic bills of telephone, telegram and fax charged by the service provider are
recognized under this account.
Transportation
Cost of air tickets, embarkation fees, bus, train or ship fares and expenses paid to transport furniture,
equipment, stationery items, etc. are recorded in this account. Payment for issuance of passport and
visa, etc. is also included in this account.
Transport of currency
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All costs related to cash consignments like, per-diem paid to guards, overtime payment made to NBE &
CBE staffs for cash deposits, other freight charges, and loading and unloading fees of cash notes (except
for labourers at treasury office) are recorded here.
Charge & Commission
Commission, service charges & trading costs of FCY lodgment to correspondent bank incurred to run the
Bank's account held with other Banks are debited to this account sunder.
Wages
Wages paid to daily laborers related to loading and unloading charge for labor works are debited to this
account.
Sport expense
Expenses incurred to cover gymnasium cost of entitled staffs of the bank are debited to this account.
Utility
The actual bills of water and electric consumed by Branches and Head office are debited to this account.
Stamp duty charge (employment contract)
It represent the 1 % stamp duty charge paid to ERCA on employment contract up on staff recruitment
are debited to this account.
Amortization Expense - Establishment Cost
Amortized portion of various cost incurred during establishment of the bank is accounted under this.
Leased line for computerization
The values of periodic bills of Broad band, ADSL and other IT network charge leased by the bank are
debited under this account.
IT Support
Cost of annual software update and network installation and other related it support fees are debited to
this account.
Security, Messengers and Janitorial Service
Monthly security, messengers and janitorial workers fee paid to the agent company are debited to this
account.
General assembly
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Costs incurred to facilitate shareholders general assembly like perdiem & transportation cost, meeting
hall rent, and refreshment costs etc. are debited to this account.
Penalties
Fines suffered by the bank due to failed to Comply various directives, rules and regulations are debited
to this account.
Swift Charges
Expenses incurred for SWIFT services charged are posted to this account.
Sundries
Expense incurred to various activities which are miscellaneous, non-recur and that do not conveniently
fall under any of the above expense accounts are debited to this account.
General expense transaction general procedures
Payment made to various general expenses shall be complying with manuals of the bank and it is also
approved by entitled personal.
Up on purchases of any service or material, branches and departments shall monitor and control their
budgets in respect to the budget limits.
Expense incurred for various activities of the bank should be reflecting in the proper leger account.
Branches and respective head office department shall make sure that incomes are recognized in the
time when they are earned.
505000
OTHER EXPENSES
0
Loss on disposal of assets
Expenses incurred at the time when assets of the bank are disposed with price below book value of the
asset are debited to this account.
Loss on foreign currency revaluation
Expense resulting from daily rate fluctuation on accounts denominated in foreign currency valued at the
end each month is credited under this account.
4.19 Contingent accounts
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600000
CONTINGENT ASSETS
0
700000
CONTINGENT LIABILITIES
0
All contingencies and commitment items that are not realized to reflect as balances sheet items are kept
under this contingent/memorandum account with appropriate document and disclosures.
1. Entry:
Debit: Accrued interest on NPL (Contingent asset)
Credit: Accrued interest on NPL (Contingent Liability)
CHAPTER FIVE
Transaction Processing
5.1 Accounting Transaction
An accounting transaction is a business event having a monetary impact on the financial statements of a
business. It is recorded in the accounting records of the business.
A Financial Transaction is an economic event that affects the assets and equities of the firm, is reflected
in its accounts, and is measured in monetary terms. Business transaction is:
 An economic event that has a direct impact on the business

 Usually requires an exchange with an outside entity
 Must be able to measure this exchange in dollars
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 All transactions affect the accounting equation through specific accounts
Similar types of transactions are grouped together into three transaction cycles:
 The expenditure cycle,

 Expenditure Cycle: time lag between the two due to credit relations with suppliers:
o physical component (acquisition of goods)
o financial component (cash disbursements to the supplier)
 Conversion Cycle :
o the production system (planning, scheduling, and control of the physical product
through the manufacturing process)
o the cost accounting system (monitors the flow of cost information related to
production)
 Revenue Cycle: time lag between the two due to credit relations with customers :
o physical component (sales order processing)
o financial component (cash receipts)
5.2 KYC (Know Your Customer)
It is a framework for banks which enables them to know / understand the customers and their financial
dealings to be able to serve them better.”
Objectives of KYC
 To enable the Bank to have positive identification of its relationship
 Is in the interest of customers to safeguard their hard earned money
KYC will be carried out at the following stages:

 Opening a new account
 In respect of accounts where documents as per current KYC standards have not been submitted
while opening the initial account
 When the Bank feels it necessary to obtain additional information from existing customers
based on conduct of account
 When there are changes to signatories, mandate holders, beneficial owners etc.
 For non-account holders approaching the Bank for high value one-off transactions like Drafts,
Remittances etc.
The bank has mandate three proofs to be collected from customers:

 Photograph
 Proof of identity
 Proof of address
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 Contact point for customers in the Bank will be the Relationship Manager / official who opens
the account and is the contact person during transactions
5.3 Analyzing Business Transactions
WHAT HAPPENED
 Make certain you understand the event that has taken place
WHICH ACCOUNTS ARE AFFECTED?
 Identify the accounts that are affected.
 Classify these accounts as assets, liabilities, or owner’s equity.
HOW IS THE ACCOUNTING EQUATION AFFECTED?
• Determine which accounts have increased or decreased.
• Make certain that the accounting equation remains in balance after the transaction has been
entered.
5.4 Three Basic accounting processes
INPUT
 Transactions provide the necessary input
PROCESSING
 Identify accounts
 Classify accounts
 Increase or Decrease?
 Enter transaction on the system and verify balance
OUTPUT
 The effects of the transaction in Asset, Liability and Equity
5.5 Source Document
The source document is the original record of a transaction. During an audit, source documents are used
as evidence that a particular business transaction occurred. It is a written document that provides
details of a transaction and the evidence that the transaction has taken place. All accounting entries are
based on information derived from these source documents.
Importance of Source Documents:
Source documents are important to businesses - to provide evidence or proof that a transaction has
occurred; Used as part of a process to record information into the books of original entry and are
required for audit purposes.
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Salient features of a good source document:
Date when transaction took place;

Names and addresses of the parties concerned namely the buyer and seller;
Nature of the transaction ie description of the goods or services;
Terms and conditions of the transaction ie trade discount, cash discount, delivery details and an
authorized signature.
Types of Source Documents

1. Cash Memo.
2. Invoices and Bills.
3. Receipt.
4. Deposit slip
5. Cheques
6. Debit Note
7. Credit Note
8. Miscellaneous
5.6 AML-Anti Money Laundering
Anti-money laundering (AML) refers to a set of procedures, laws or regulations designed to stop the
practice of generating income through illegal actions.
Since money is a limited resource, money accumulated illegally and with no regulation prevents capital
to flow into socioeconomically productive industries. The imbalance in money flow also inevitably leads
to further printing of money, harming the purchasing power of a country's currency. If not controlled,
this inflation can cripple and erode an economy.
AML rules and regulation rose to global recognition when the Financial Action Task Force (FATF) was
formed along with a framework for international standards for fighting money laundering. International
AML bodies expect jurisdictions to criminalize all money-laundering activities and produce a healthy
amount of enforcers, regulators and tools needed for constant investigations, exchange of needed
information with the international community and the use of law to order financial institutions to
control risk, keep records and report any money laundering activity on their watch.
Process Money Laundering Terrorist Financing

Motive Profit Ideological
Source of funds Illegal Legal + Illegal
Volume of funds Large Small
Operate through Front Companies Charities + Individuals
Final effect Drain of the country's resources Acts of Terror
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CHAPTER SIX
Management of Suspense Accounts

According to the Webster’s dictionary, Suspense account defined as an account for the temporary entry
of charges /credits or especially receivable/payables pending determination of their ultimate
disposition.
As a result, the pending amounts require further follow-ups. For regular follow-ups, it is important the
bank to have a well organized tracer handling system. For the implementation of this system, Finance
and Accounts Department established monthly and quarterly reporting system for suspense accounts.
All the transactions recorded in suspense accounts, are ultimately removed either by payment or
recovery in cash or by adjustment. These transactions, so, consist of debits and credits. The
asset/Receivables part of suspense account increase in debit sides and decreases/settled in credit sides.
For liabilities/payables, the credit side is an increase side and debit side is a decrease side.
After transactions are made during the month, sometimes, the outstanding tracers and the account
balance in the general ledger may vary. The variation should be avoided.
 Why the tracer totals are greater or less than the balance available on General Ledger
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The discrepancies may arise on the following NINE common errors committed in account originating,
processing, posting and balancing process.
 Exclusion- a tracer/advices/copy of original document is not available in outstanding files

 Omission of transaction – tracer available but not yet posted on the system
 Posting Error - an item is incorrectly posted to another account
 Error of principle - an item is posted to the correct side of the wrong type of account,
 Error of original entry - an incorrect figure is entered in the records
 Reversal of entries - the amount is correct, the accounts used are correct, but the account that
should have been debited is credited and vice versa
 Addition errors - figures are incorrectly added in a tracer
 Trial balance errors - a balance is omitted, or incorrectly extracted, in preparing the trial balance
 Compensating errors - two equal and opposite errors leave the trial balance balancing
This type of error can be because a deliberate second error has been made to force the
balancing of the records or to conceal a fraud
Consequently, branches should check their balances kept in Receivables and payables on daily/regular
basis. The two extreme accounts (Receivables and Payables), in general, tracers and posting description
should contain the following facts in suspense account management.
On transaction date
Receivables:
Each Tracer in receivable account should have
 Ticket originated date
 Account debited and credited
 Name of branch/Individual/organization to whom we expect the collection
 Full disclosure of the transaction
 Copies of relevant document memo/letter
 Amounts in words and figures
 Authorized personnel signatures
Payables:
Each Tracer in payable account should have
 Ticket originated date
 Account Credit and Debit
 Name of branch/Individual/organization to whom we expect to pay
 Full disclosure of the transaction
 Copies of relevant document memo/letter
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 Amounts in words and figures
 Authorized personnel signatures
6.1 Settlement of Suspense Accounts
Exceptional Suspense Accounts

There are some accounts to be settled on specific period of time. The settlement of these accounts
delayed or if the amount is unpaid to the concerned organ, will penalized the bank and/or its
employees who make the faults.
Therefore, the regular maturing of these payments as per the predefined dates will make the
suspense accounts to settle in short period of time with less effort.
Some of these accounts are:-
 Employee Income Tax,
 cost sharing,
 Pension contribution,
 withhold tax, Stamp duty, and
 Interest taxes
Hence, those branches that are located outside Addis Ababa should pay their taxes to the concerned
regional government organ regularly. Taxes to be paid for the Federal government such as Withhold
tax, 5% Interest tax and Stamp Duty tax should be transferred to Finance and Accounts department
through credit summaries on daily basis. The daily transfer of those transactions will decrease the
balance available in the branches’ suspense accounts.
Branches located in Addis Ababa, also send all the taxes and pension contributions to Finance and
accounts at the time when the entry processed in the branch through credit summaries on daily
bases.
In General the following action should be implemented by branches/departments whose tracers are
outstanding:-
On or Before End of the month

The branch should
 Check tracers and account balance are alike
 Inform the branch/Customer/organization should pay or collect the outstanding sum
 Collect the sum from the account or pay to the beneficiary to the account if available
 Transfer the amounts which belong to other branches or department through credit
summary
 Request branches/departments in order to respond your requests
 Request branches/departments in order to claim for payments available in the branch
On or Before End of the annual closing
The branch should
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 Check tracers and account balance are alike
 Check which balance will not transfer to the next fiscal period
 All suspense account items should be eliminated on or before the end of the fiscal year
6.2 Impacts of unsettled Suspense accounts in financial statements
Financial statements are a collection of reports about an organization's financial results, condition, and
cash flows. They are useful for the following reasons:
 To determine the ability of a business to generate cash, and the sources and uses of that cash.
 To determine whether a business has the capability to pay back its debts.
 To track financial results on a trend line to spot any looming profitability issues.
 To derive financial ratios from the statements that can indicate the condition of the business.
 To investigate the details of certain business transactions, as outlined in the disclosures that
accompany the statements.
The standard contents of a set of financial statements are:
 Balance sheet. Shows the entity's assets, liabilities, and stockholders' equity as of the report
date.
 Income statement. Shows the results of the entity's operations and financial activities for the
reporting period.
 Statement of cash flows. Shows changes in the entity's cash flows during the reporting period.
 Supplementary notes. Includes explanations of various activities, additional detail on some
accounts, and other items as mandated by the applicable accounting framework, such as GAAP.
If financial statements are issued strictly for internal use, there are no guidelines, other than common
usage, for how the statements are to be presented. In our case, a consolidated financial statement for
branches, IBD and HO accounts and a statement of cash flows as a bank’s wide are prepared at the end
of every month. Like, suspense accounts reports, as a supplementary note will be prepared by Finance
and accounts department reconciliation division for all branches, IBD and HO.
Consolidated financial statements are the financial statements of a group of entities that are
presented as being those of a single economic entity. The definitions are:
 A group is a parent entity and all of its subsidiaries
 A subsidiary is an entity that is controlled by a parent company
Thus, consolidated financial statements are the combined financials for a parent company called HO and
its subsidiaries called branches.
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Consolidated financial statements are useful for reviewing the financial position and results of an entire
group of commonly-owned businesses. Otherwise, reviewing the results of individual businesses within
the group does not give an indication of the financial health of the group as a whole.
6.3 Users of Financial statements
Internal users (Primary Users) of accounting information include the following:
 Management: for analyzing the organization's performance and position and taking appropriate
measures to improve the company results.
 Employees: for assessing company's profitability and its consequence on their future
remuneration and job security.
 Owners (shareholders): for analyzing the viability and profitability of their investment and
determining any future course of action.
External users (Secondary Users) of accounting information include the following:
 Creditors: for determining the credit worthiness of the organization. Terms of credit are set by
creditors according to the assessment of their customers' financial health. Creditors include
suppliers as well as lenders of finance such as banks.
 Tax Authorities: for determining the credibility of the tax returns filed on behalf of the
company.
 Investors: for analyzing the feasibility of investing in the company. Investors want to make sure
they can earn a reasonable return on their investment before they commit any financial
resources to the company.
 Customers: for assessing the financial position of its suppliers or depositors which is necessary
for them to maintain a stable source of supply in the long term.
 Regulatory Authorities: for ensuring that the company's disclosure of accounting information is
in accordance with the rules and regulations set in order to protect the interests of the
stakeholders who rely on such information in forming their decisions.
6.4 Reliability of Financial statements
Information is reliable if a user can depend upon it to be materially accurate and if it faithfully
represents the information that it purports to present. Significant misstatements or omissions in
financial statements reduce the reliability of information contained in them.
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Example: A company is being sued for damages by a rival firm, settlement of which could threaten the
financial stability of the company. Non-disclosure of this information would render the financial
statements unreliable for its users.
Example: A branch balance sheet exist long outstanding or unsettle amount in the receivable account
for more than a year categorized on age break down as a current month for more than a year.
Reliability of financial information is enhanced by the use of following accounting concepts and
principles:
1. Neutrality
Information contained in the financial statements must be free from bias. It should reflect a
balanced view of the affairs of the company without attempting to present them in a favored
light. Information may be deliberately biased or systematically biased.
2. Faithful Representation
Information presented in the financial statements should faithfully represent the transaction
and events that occur during a period. Faithfull representation requires that transactions and
events should be accounted for in a manner that represents their true economic substance
rather than the mere legal form. The rationale behind this is that financial information contained
in the financial statements should represent the business essence of transactions and events not
merely their legal aspects in order to present a true and fair view.
3. Prudence
Preparation of financial statements requires the use of professional judgment in the adoption of
accountancy policies and estimates. Prudence requires that accountants should exercise a
degree of caution in the adoption of policies and significant estimates such that the assets and
income of the entity are not overstated whereas liability and expenses are not under stated. The
rationale behind prudence is that a company should not recognize an asset at a value that is
higher than the amount which is expected to be recovered from its sale or use. Conversely,
liabilities of an entity should not be presented below the amount that is likely to be paid in its
respect in the future.
4. Completeness
Reliability of information contained in the financial statements is achieved only if complete

financial information is provided relevant to the business and financial decision making needs of
the users. Therefore, information must be complete in all material respects.
131 | P a g e
Incomplete information reduces not only the relevance of the financial statements, it also
decreases its reliability since users will be basing their decisions on information which only
presents a partial view of the affairs of the entity.
5. Single Economic Entity Concept
Consolidated financial statements of a group of companies are prepared on the basis of single
economic entity concept.
6.5 Accuracy of Financial statements
Accurate financial statements provide a sound basis for valuing your business and analyzing the
results of operations.
 It's easier to build your case for the value you believe the company is worth when the integrity
of your financial data is sound.
 You will be able to easily identify items that should not be included in the sales price, including
add-backs such as entrepreneurial expenses and one-time items such as
moving expenses.
 Timely, accurate, well-organized financial statements present your business to prospective
buyers effectively; buyers won't have to ask a lot of questions to understand the results of
operations and your financial position.
 You will be better able to explain changes in the business over time if your controller reviews
financial results and investigates unusual items each month.
 The bank will spend less money and time on accounting before, during and after the difference
occurred because quality financial data doesn't require a lot of verification and review.
 Accurate financial statements increase the opportunity for new depositors to work with your
bank due to the financial position shows accurate and explanatory by itself.
Timing is everything
When you close your monthly financial statements plays a key role in the accuracy of their
information. If you don't cut off each month at the right time, you may have significant fluctuations
in your gross margin. Your sales may be cut off at the right time each month, but perhaps your costs
aren't, or vice versa. This could cause your margins to fluctuate as much as from month to month,
even though you're selling the same product. If you can't explain these fluctuations because you're
not tracking expenses well, buyers will be less likely to trust the information in your financial
statements and less willing to pay a high dollar for your business.
6.6 Common mistakes in financial statements
Here are some factors that can detract from the value of your financial statements:
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 Not performing bank reconciliations and booking the entries monthly;
 Not accurately accruing revenues and expenses and the related assets and liabilities;
 Not identifying un reconciled items and adjustments;
 Not having proper controls to ensure accurate and timely processing of all items affecting the
financial statements;
 Not reconciling prepaid items, other assets or accrued liabilities monthly, resulting in overstating
or understating net income and working capital;
 Suspense accounts should be reviewed on a regular basis to confirm their validity Falsification
and duplication of transactions in order to generate a false payment;
 Not posting expenses to the correct accounts on the income statement, which can lead to
understating or overstating some accounts;
 Not having an easily navigated layout for the income statement and balance sheet, making it
difficult to interpret data; and
 Repeatedly changing accountants immediately prior to closing
6.7 Reporting of Suspense Accounts

Finance and Accounts Department established regular reporting system for suspense accounts.
The reporting system has two wings.
1. according to their ages at the end of every month

2. tracer balance agree with account balance at the end of each quarter
A. Reporting of Suspense Accounts according to their ages
The outstanding balance of an account composed of various amounts entered in various dates. Each
amounts or figures should be indentifying whether an individual item settled on unsettled. If the
individual sum is settled, the matured figure reduces the total account balance. The simplest way of
getting the outstanding balance is holding of outstanding tracers in proper chronological way by
detaching the matured one.
Therefore, in our context,

Aging Reporting System measured in terms of months.
All Branches, IBD and Finance Department should report all suspense accounts by classifying
through ages (chronologically) to Reconciliation Division every end of each month accurately
within 3-consecutive days from the beginning of new month.
The Reporting format attached.
B. Reporting of confirming the Suspense Accounts tracers agree with account balance in
the GL
133 | P a g e
Tracers are advices or copy of the original documents used for regular follow-up exist a life until it is
matured or settled. These tracers total must agree with the controlling account available in the General
Ledger every day.
Tracers and account balance, sometimes, may not agree. The disagreement between the account
balance in the General Ledger and tracers handled by branch supervisors’ should be identified and a
proper solution should be maintained prior to the report is made. The report should include whether
the discrepancy traced/ solved or unidentified.
Therefore, in our context,

All Branches, IBD and Finance Department should send the Suspense Account Discrepancy Notification
between Tracers and General Ledger to Reconciliation Division every end of each quarter accurately
within 3-consecutive days from the beginning of the next quarter by including triple signatories(branch
Manager, Accountant and Auditor) through Fax or scanned to the system.
6.8 Team Sprit
Team spirit is fundamental to a group's success. MacMillan Dictionary defines team spirit as "an
enthusiastic attitude towards working or playing together with other people as a team." There are many
situations in which people can create team spirit.
The Importance of Team Spirit
The strongest, most united teams rise to the highest levels of performance. A team with negativity,
doubts and disinterest will most likely fail to reach its goals.
For example, declining the balance on the outstanding suspense account in various branches book of
accounts is one example that increases the quality of our bank’s financial statement. Preparing and
sending of financial statements accurately and on timely to Finance and accounts as per the schedule set
by the department, is the result of the importance of team spirit.
Without a team spirit,

Organizations can suffer. No matter how well-organized and planned a venture may be, without the
commitment of the team behind it, the objectives will not be as effectively or as quickly met.
Therefore, the team spirit, simply expressed working in groups and sending of the required information,
performance of your branch, or any other explanatory information as per the schedule set by the bank
timely and accurately.
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CHAPTER SEVEN
IFRS versus US GAAP
7.1 Objectives
 Explain the reasons for differences in accounting practices across countries

 Understand the role of the International Accounting Standards Board (IASB) in the development
of International Financial Reporting Standards (IFRS)
 Recognize the major differences between U.S. GAAP and IFRS
7.2 Principles- vs. Rules-based Standards
 IFRS—principles-based accounting standards

 U.S. GAAP—rules-based accounting standards
 Future international accounting standards will need to be more principles-based
7.3 Timing and measurement of revenue recognition
 U.S. GAAP and IFRS provide similar general guidance
135 | P a g e
 U.S. GAAP includes many additional rules and other guidance promulgated by FASB, SEC, and
others
7.4 Cash and Internal Controls
 Accounting for cash is the same under both U.S.GAAP & IFRS
7.5 Internal controls:
 U.S.GAAP: requires management to document and assess the effectiveness of all internal
control processes that could affect financial reporting
 IFRS: burden of documenting effective internal controls is much less, or even nonexistent
7.6 Receivables
 Accounting for receivables and uncollectible accounts same under both U.S. GAAP and IFRS
7.7 Inventory
 LIFO Method
 U.S.GAAP : allowed
 IFRS : not allowed
 Market value in lower-of-cost-or-market
 U.S GAAP : similar(market value – replacement cost)
 IFRS : similar(market value – net realizable value)
 Reversal of inventory write-downs
 U.S GAAP : not allowed
 IFRS : allowed
7.8 Long-Term Assets
 Valuation of property, plant, and equipment

 U.S.GAAP: Cost less accumulated depreciation
 IFRS: Cost less accumulated depreciation (or) Fair value(revaluation)
7.9 Valuation of Intangible assets
 U.S GAAP: Revaluation prohibited

 IFRS: Cost less accumulated amortization (or) Fair value(revaluation)
136 | P a g e
Research and development expenditures
 U.S GAAP: Expensed in the period incurred
 IFRS: Research: expensed in the period incurred
 Development—that meet specified criteria: capitalized
7.10 Current Liabilities
Contingencies
 U.S. GAAP: accrue if it is probable and can be reasonably estimated
 IFRS: threshold for “probable” is defined as “more likely than not” (greater than 50%)
Valuation of long-term contingencies
 U.S.GAAP: present value—only when timing of cash flows is certain
 IFRS: present value—time value of money is material
7.11 Long-Term Liabilities

Treatment of convertible debt
 U.S. GAAP: entire issue price is recorded as a liability
 IFRS: convertible debt is divided into its liability (bonds) and equity (conversion option) elements
7.12 Stockholders’ Equity
Distinction between debt and equity for preferred stock

 U.S. GAAP: most preferred stock is included in stockholders’ equity, with the dividends reported
as a reduction in retained earnings
 IFRS: most preferred stock is reported as debt, with the dividends reported in the income
statement as interest expense
 Reacquired shares: IFRS does not permit retirement of shares
 All buybacks are treated as treasury stock
7.13 Statement of Cash Flows
Classification of cash flows

Cash outflows for interest payments
 U.S. GAAP—operating cash flows
 IFRS—either operating or financing cash flows
Cash inflows from interest and dividends received
 U.S. GAAP—operating cash flows
 IFRS—either operating or investing cash flows
Direct or indirect method
137 | P a g e
 FASB and IASB both require direct method rather than permitting either the direct or indirect
method
Disclosure of noncash activities
 U.S. GAAP: Reported either on the face of the statement of cash flows or in a disclosure note
 IFRS: Disallows presentation on the face of the statement and requires reporting in a disclosure
note
7.14 Discontinued operations
 U.S. definition is broader than its international counterpart

 IFRS considers a component to be primarily either a major line of business or geographical area
of operations
7.15 Extraordinary items
 U.S. GAAP : provides separate reporting

 IFRS : recording or disclosure not allowed
References
1. Introduction to Financial accounting, 3rd edition, Charles T Horngren Gary Lsundem

2. Introduction to Financial Accounting by Henry Dauderis & David Annand
3. Accounting Real world application
4. Abay Bank Accounting Manual
5. Abay bank foreign trade service manual
6. IFRS-chartered accountant Ireland 4th edition
7. Accounting principles8th edition, Dan R.ward Suzan P.ward-Louisana university
8. Wiecek and Young IFRS Primer
138 | P a g e

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Bank

Prepared By Bethel Wossene

 Fraud can be made using outstanding these suspense accounts

 Understand the content of the general ledger and subsidiary ledgers,

1.2.2 Specific Objective

 To make aware participants of the chart of accounts of the bank

It is representation of the meaning or Explanation of the results.

Accounting is Practice or knowledge concerned primarily with

Accounting used as:

It is an establishment authorized by a government to accept deposits, pay interest, clear checks,

2.4 Minimum Paid-up Capital

2.5 Bank Account

It is a financial account maintained by a financial institution for a customer. It can be a deposit

2.6 Accounting Information System

2.7 Accounting equation

Assets = Liabilities + Owner’s Equity

2.9 Principles and Rules

2.10 IFRS Definition for “Assets”

An asset is defined as:

An asset is recognised when:

A liability is recognised when:

2.12 IFRS Definition for “Shareholder’s equity”

2.13 Basic Accounting Principles and Guidelines

1. Economic Entity Assumption

3. Time Period Assumption

5. Full Disclosure Principle

6. Going Concern Principle

8. Revenue Recognition Principle

3.1 Definition and Structure of chart of account

3.2 Structure of chart of account

The first digit represents the account class:

3.3 Abay Bank Chart of Account

1020000 DEPOSITS WITH OTHER BANK

1020200 NBE DEPOSITS

1020300 FOREIGN BANK DEPOSITS

1030200 LONG TERM INVESTMENT

1040000 SUSPENSE ACCOUNTS

1040200 SUPPLIES STOCK

1040300 UNCLEARED EFFECTS - LOCAL

1040400 UNCLEARED EFFECTS - FOREIGN

1040600 ASSETS AWAITING FOR RESALE

1040700 ACCRRUED INTEREST RECEIVABLE

1040800 DEFERRED CHARGES

1050000 LOANS AND ADVANCES

1050200 LOANS AND ADVANCES LONG TERM

1060000 FIXED ASSETS

1070000 INTER BRANCH ACCOUNTS

1076000 HEAD OFFICE ACCOUNT

2010200 SAVING DEPOSITS

2010300 FIXED TIME DEPOSITS

2020000 ACCOUNTS PAYABLE

2020200 SUNDARY CREDITORS

2020273 NBE CREDIT INTERMEDIARY GL

2030200 LONG TERM BORROWINGS

4000000 INCOME ACCOUNTS

4010200 INTEREST INCOME ON OVER DRAFT ACCOUNTS

4010300 INCOME ON SURPLUS FUND

4020000 COMMISSION INCOME

4020200 COMMISSION INCOME - FOREIGN

4030000 OTHER INCOME

5010200 INTEREST EXPENSE - SAVING DEPOSITS

5010300 INTEREST EXPENSE - FIXED TIME DEPOSIT

5010400 INTEREST EXPENSE - BORROWING