10. Financial accounting

Financial accounting information is intended both for managers and for the use of parties external to the organization, including shareholders, bankers and other creditors, government agencies, and the general public. Investors in an enterprise need information about the financial status and future prospects of an organization. Bankers and suppliers grant loans and extend credit to organizations based on their financial soundness. Even customers and employees concerned about the condition of an organization make use of accounting information.

Financial statements provide information on a firm’s financial condition (or position), on changes in this position, and on results of operations (profitability). All businesses maintain records based on accounting period of 12 months that follows either the calendar year or any other complete 12-month period known as fiscal year. Many companies publish these statement in an annual report.

Financial accounting information generally relates to the firm as a whole, since outsiders can make decisions only on matters pertaining to the firm in its entirety, such as whether to extend credit to it. Such information, usually historical, is a report upon what has happened.

11. Bank organization and operation.

The central bank acts as banker to the commercial banks and supervise and regulates not only the banking system but also the financial sector. It fixes the minimum interest rate and influences exchange rates.

There are three most important instruments through which the Bank might seek to affect the money supply: reserve requirements, the discount rate, and open market operations.

To ensure the safety of the banking system, central banks impose reserve requirements, obliging commercial banks to deposit a certain amount of money with the central bank at zero interest.

The discount rate is the interest rate that the Bank charges when the commercial banks want to borrow money.

An open market operation occurs when the central bank alters the monetary base by buying or selling financial securities in the open market.

Commercial banks are businesses that trade in money. They provide and develop services that can be sold at a price that will yield a profit. Commercial banks offer large-scale services to companies, government agencies, other banks and smaller-scale services to the general public.

12. Types of banks and their function

The major functions of both types of banking are:

• deposit

• payments

• credit

In the UK, the commercial banking system comprises registered banks, the National Girobank operating through post offices (Giro is a system of electronic credit transfer used in Europe and Japan, involving banks, post offices, and public utilities), and about a dozen trustee saving bank.

Clearing bank are so named because they have a central clearing house for handling payments by check. Clearing banks use the central clearing house in London to deal with other bank.

Universal bank combine deposit and loan banking with share and bond dealing, investment advice, etc.

Merchant banks specialize in raising funds for industry on the various financial markets, financing international trade, issuing and underwriting securities, dealing with takeovers and mergers, issuing government bonds, and so on.

Investment banks - financial institution that organizes large companies and governments to raise capital in global financial markets.

There are also supranational banks such as the World Bank or the European Bank for Reconstruction and Development, which are generally concerned with economic development.