It is documented in two ways. All assets are represented on the left (asset), and liabilities and capital of the bank are represented on the right (passive). An asset is anything that can be old, whereas a liability is a financial institution's obligation that must be paid back eventually. When all assets have been sold and all liabilities have been paid, the owner's equity in a bank is often referred to as bank capital. The following equation describes the relationship of all balance sheet components.
Bank assets are equal to the sum of bank liabilities and bank capital.
Assets that generate revenue include:
-Money in hand;
-Money held in correspondent accounts;
-Money in the bank's reserve funds;
-Loans granted to legal entities and individuals; (client loan portfolio)
-Interbank loans have been granted;
-Bonds issued by the government;
All liabilities differ in terms of duration and cost depending on the nature of the funding sources. Deposits from individuals and legal entities, as well as funds from central (national) banks and loans from other commercial banks, are the most common sources of funds.
-Bank and other credit institution funds;
-Accounts for clients, including household deposits;
- Promissory notes issued by a bank;
Bank owners can leverage their capital to earn much more value than would otherwise be possible using only the bank's capital by using liabilities.
Furthermore, central banks regulate bank liabilities by imposing administrative restrictions or incentives or by establishing mandatory reserve requirements from attracted deposits.
Current assets and liabilities are distinguished from long-term liabilities. Current assets are those that are expected to be sold or converted to cash within one year; otherwise, they are long-term assets. Current liabilities are expected to be paid within one year; otherwise, long-term liabilities exist. Current assets and current liabilities are important in determining a bank's liquidity. Working capital is calculated by subtracting Current assets from Current liabilities. It is a liquidity indicator. With an excess of working capital, a bank can meet its short-term liabilities.
Current Assets - Current Liabilities = Working Capital
Banks can also obtain additional funds from their owners, which are referred to as bank capital. The net worth of a bank is defined as its capital (= total assets minus total liabilities). However, recent accounting changes have made determining a bank's true net worth more difficult."""