The Truth About Bank Accounting
Most people are confused by bank accounting. We know how a company account work because a lot of us have individual accounts and we can, kind of, assume how a business's work but a bank accounting is different.
And I'm frankly fascinated by bank accounting. I know what you're saying, "Hey, Robert you've got to get a life." But bank accounting is interesting because, first of all, when you go to any downtown, what is the nicest building in that downtown? It's usually the bank. Right? Marble floors, marble counters, a beautiful safe in the back and, you know, especially the ones that were built in the '50s and '60s. And so, whatever the banks doing, they're making a lot of money.
And the way, you've got to look at bank accounting is, kind of, the opposite of the way you look at your accounting. For example, when a bank says they're going to credit your account, they're increasing a liability for the bank. But when you think of a credit, you think of your bank account going up. So, everything from a bank standpoint is the opposite. Credits are bad for the bank, debits are good. The opposite of what you do.
But the other thing with the bank is, how does the bank make money? It's interesting because the bank makes money as we know interest. So, when you look at a bank financial statement the number one revenue driver is gonna be interest income, okay, from loans and stuff like that.
The second one is probably going to be fees like bank fees and stuff like that. And what's your biggest expense? Well, years ago the biggest expense, it still is believe it or not, is interest expense. And just looking at a bank statement it's interesting to see how profitable or how much they can mark these up. For example, a credit card right now, the average credit card interest rate in the United States is 13%.
The average money that the bank pays on your savings account it's like .01. So, think of that margin. That's a huge, huge... How many companies...if a company has a 20 or 30% markup, this is, you know, a thousand and thousands of percent markup.
That's why bank accounting is so interesting and that's why banks at least historically have had the best and the nicest buildings and made lots of money. Now, it's a little bit more competitive with some of the new products coming online.
If you have any questions about bank accounting, feel free to give me an email.Return to Video Gallery