The accuracy, reliability, and standardized presentation of financial reporting data are critically important for credit institutions. Both banks and their shareholders have a strong interest in this. The organization of accounting in banks is closely connected to accounting practices in other sectors of the economy. But how exactly are they connected? What are the subject and methods of accounting in banks, and do the fundamentals differ?
These and other questions are answered by Jamil Asadov, editor of the Accounting.Az website.
If I had to answer this in one word, I would say accounting. Let’s look at it more closely. Although these entities are legally independent, they are part of a unified economic system where accounting is essential. There are different types of business accounting, and financial accounting is one of them. The way accounting is organized in banks directly affects how it is maintained in companies. This influence comes from the services banks provide to businesses, such as settlements, cash operations, and lending.
Banks prepare individual accounts for clients on a daily basis and provide statements that reflect all transactions and loan payments carried out during the day. These statements play a key role in ensuring that all banking operations are properly recorded in a company’s accounting system.
In general, the purpose and core concepts of accounting are the same across different sectors. However, the approach may vary slightly. Concepts such as assets, liabilities, balance sheets, and the accounting equation are fundamental. In banks, these concepts have their own specific features. For example, bank balance sheets are prepared daily, entries are recorded every day, and account statements are regularly issued to clients.
It is also worth noting that all types of business accounting are successfully applied in banking. Management, tax, and financial accounting all play an important role in meeting the needs of information users. A unified financial reporting format used by banks allows for effective comparison and analysis across the sector.
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The subject of accounting in banks includes the elements that form the bank’s core activities, such as its own funds, attracted funds, and valuables or documents temporarily held by the bank. This includes the assets, liabilities, and all operations carried out by credit institutions.
Assets are the resources that enable the bank to carry out its activities. Liabilities are the sources of these resources. For example, deposits collected by a bank are considered liabilities and serve as a source of funds. These funds are then used to carry out active operations such as lending.
The method of accounting in banks is the set of rules and procedures used to record financial and business activities. It includes several key elements such as documentation, inventory, accounts, double-entry bookkeeping, valuation, balance sheets, and financial reporting.
In general, the methodological foundations of accounting are defined by the Law of the Republic of Azerbaijan “On Accounting.” While banks follow a unified methodological framework, accounting in banks has its own specific features due to the nature of financial services and money circulation. Based on these особенности, specific methodological documents are developed, such as the “Rules for Accounting in Credit Institutions Operating in the Republic of Azerbaijan,” the “Chart of Accounts for the Banking System of the Republic of Azerbaijan,” and internal regulations.
Accounting in banks is carried out based on the bank’s accounting policy, which is formed in accordance with Azerbaijani legislation. The accounting department operates as an independent structural unit led by a chief accountant. Accounting operations are performed by bank employees responsible for receiving, processing, and controlling settlement and cash documents, as well as other related documents.
Operational work in banks includes receiving documents from individuals and organizations, verifying their accuracy, preparing them for accounting records, maintaining records of settlement documents, and ensuring timely execution of payments.
The combination of these processes is known as accounting and operational work. Its organization must meet the following requirements:
The operating schedule of the bank is determined independently. The authority of employees to sign settlement and cash documents is formalized by an order of the bank’s management. Department heads and deputy chief accountants have the right to provide supervisory signatures.
In large credit institutions, accounting and operational work is typically divided into three areas: front office, back office, and accounting.
Different types of accounting are used at various stages of banking activity, but financial accounting remains the primary source of information for both management and financial reporting. For this reason, the proper organization of accounting in credit institutions, as well as the correct definition of its subject and methods, is of great importance.
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