Provisional Balance sheet, Projected Balance sheet, Estimated Balance Sheet and Final Balance Sheet

Provisional Balance Sheet: - Provisional Balance Sheet is prepared for the Period which is already started and Completed but finalisation of Accounts not done.

Estimated Balance Sheet: - Estimated Balance Sheet is prepared for Period which is already started but not Completed, prepared based on Estimation.

Projected Balance Sheet: - Projected Balance Sheet is Prepared for period which not started yet, Prepared based on Projection.

Final Balance Sheet: - Final Balance Sheet is prepared for period which is already started and completed, Balance Sheet gets finalised and audited (whenever required). Final Balance Sheet is Prepared for a Any Financial Year or any Financial Period.

 

Example: - 

Suppose Mr. A approach bank for Working Capital Loan on 2nd March 2018. Bank provided list of documents to be deposited to bank within certain time. In List, bank requires 4 Types of Balance Sheets of different periods i.e Provisional Balance Sheet, Estimated Balance Sheet, Projected Balance Sheet and Audited Balanced Sheet.  Guide Mr.A 

Solution: -

Audited Balance Sheet to be provided by Mr. A shall be for period Financial Year 2016-17.

Provisional Balance Sheet to be Provided by Mr. A shall be for Period starting form 1st April 2017 to 28 Feb.

Estimated Balance Sheet to be Provided by Mr. A shall be for Period starting from 1st April 2017 to 31 March 2018, Using Actual Data till preparation of Estimated Balance Sheet and for remaining period based on Estimation.

Projected Balance Sheet to be Provided by Mr A shall be for Period starting from 1st April 2018 to 31st 2019.

 

Meaning of Different Terms used in Asset securitization for Loan: -

Hypothecation: - Term Hypothecation is used for creating charge against security of Movable assets but possession of asset remains with borrower itself.

Pledge: - Term Pledge is used when lender (pledge) take actual possession of assets such as Goods or certificate.

Mortgage: - Term Mortgage is used for creating charge against immovable property which includes Land, Building or anything which is attached to earth or permanently fastened to anything attached to earth.

Lien: - Term Lien is defined as right of retaining the property of another until claim of Liener satisfied.

 

Difference between Over Draft (OD) and Cash Credit (CC)

Over Draft (OD): - Overdraft is a credit agreement between borrower and financial Institution that permits an Account Holder (Borrower) to use or withdraw more then they have in their accounts without exceeding maximum permissible amount.

Cash Credit (CC): -  Cash Credit is short term loan given to businessman. Cash Credit will be provided by bank or financial Institutions after getting only proper security from borrower then lender allows borrower to use draw money continuously up to certain limit.

Difference between Bank and Non Banking Financial Institution

1. Bank can accept Demand Deposit from Customer where as Non Banking Financial Institution can not accept Demand Deposit from Customers.

2. Bank is part of Payment and settlement system where as Non Banking Financial Institution is not part of Payment and Settlement System. Bank can issues cheque drawn itself but Non Banking Financial Institution can not issue cheque drawn itself.

3. Deposit Insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is available for Deposit Holders of Bank where as Deposit Insurance Facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available for Depositor of Non Banking Financial Institution.

 

Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)

Cash Reserve Ratio (CRR): - Reserve Bank of India (RBI) requires Banks to maintain Certain Minimum Percentage of Total Net Demand and Time Liabilities as Cash or Deposit with RBI is called Cash Reserve Ratio.

Demand Liabilities means any Liability which is payable on Demand by any Depositor any time. Demand Liability includes Current Accounts, Demand Liability Portion of Saving Account, Margin Money held against Letter of Credit or Bank Guarantees, Balance in Overdue Fixed Deposit, Margins Held against letter of Credit or Bank Guarantee, Cash Certificate Cumulative or Recurring Deposit, Outstanding Telegraph Transfer or Mail Transfer or Demand Draft, Unclaimed Deposit, Credit Balance in Cash Credit Accounts, Security Deposit held as Security for Loan or Advance etc.

Time Liability means any Liability which payable after certain time period. Time money generally includes fixed deposits and recurring deposit but it also includes Time liability portion of Cash Certificate or Bank Guarantee or Security Deposit against Loan or advance etc.

Reserve Bank of India (RBI) requires that Banks should maintain certain amount in form of  Cash or Gold or in form of Govt approved securities before any money lender to its Customer, such Requirement is called Statutory Liquidity Ratio (SLR). Statutory Liquidity Ratio also refers to Ratio of Liquid Assets to Net Time And Demand Liability. Whereas Liquid assets Refers to Cash, Gold or Government Approved Security etc.

 

Drawing Power  (DP)

When  any Business applies for Credit Facility or Loan Bank or Financial Institution Calculate Drawing Power (DP) of Borrower before appropriate Loan. Drawing Power refers to ability of Borrower to get Loan amount based on his or her Financial Statements. Drawing Power (DP) is Calculated as Certain Percentage of Amount of Debtors Less Amount of Creditor, it means Drawing Power (DP) is equal to amount remaining after deducting margin from difference of Sundry Debtors and Sundry Creditors. Percentage of Margin money vary from bank to bank, Generally banks or financial Institution treat 20% - 25% of Difference between Sundry Debtors and Sundry Creditors as Margin Money.

 

Bank Reconciliation Statement (BRS)

If some deposit cheque in bank then that cheque may or may not clear on same day,  Cheque will take time to clear in Clearing System, Cheque issued but it may or may not presented in Bank for Clearing on same day. In general Practice Accountant of Companies or firms make entry on same day of Cheque issued or Cheque Received and presented for Clearing. In such a case Bank Balance as per Books of Accounts doesn't match with Balance as per Bank Statement, to rectify the difference balance a Reconciliation Statement is Prepared and that Statement is called as Bank Reconciliation Statement.