IFRS9 has been implemented in 2018 and changed bank accounting classification and measurement rules. By SAP Bank projects implementation, our configurations need to setup debit/credit settings for Loans Management, Collateral Management, Bank Customer Account, Business Partner, etc. The concept debit/credit in German soll/haben, in Chinese 借方/贷方, in Japanese 借り方/贷し方.
We are aware, that the bank accounting is quite different from general enterprise accounting and certainly SAP Bank solution completely represents accounting rules in the real world. So some are confused by debit/credit settings in SAP bank.
This article tries to clarify and provide an easy approach to understand and remember bank accounting entry rules.
This introduction is focusing on bank accounting under IFRS9 structure, although it could be used to understand bank accounting treatment before IFRS9. IFRS9: International Financial Reporting Standard 9 Financial Instruments.
Step One: remember
Assets = Liabilities + Equity
Assets = Liabilities + Capital + Revenues – Expenses – Dividends
Step Three: Expand the above equation
The left side of the equal sign = Cash + central bank balances + Interbank balances without central bank items + Central bank funds sold and securities purchased under resale agreements + Securities borrowed + Total financial assets at fair value through profit or loss + Fair value through other comprehensive income + Financial assets available for sale + Equity method investments + Loans at amortized cost + Securities held to maturity + Property and equipment + (Account and notes receivable – Allowance for doubtful accounts) + Inventory + Land + (Buildings or equipment & tools – accumulated amortization of buildings or equipment & tools) + Goodwill and other intangible assets + Other assets + Assets for current tax + Deferred tax assets.
The right side of the equal sign = Deposits + Central bank funds purchased and securities sold under repurchase agreements + Securities loaned + Financial liabilities at fair value through profit or loss + Other short-term borrowings + Other liabilities + Provisions + Liabilities for current tax + Deferred tax liabilities + Long-term Senior debt + Subordinated debt + Trust preferred securities + (Revenues of Corporate Bank Global Transaction Banking and Commercial Banking – Expenses of Corporate Bank Global Transaction Banking and Commercial Banking) + (Revenues of Currency and Fixed Income Certificate Sales & Investment Bank Trading – Expenses of Currency and Fixed Income Certificate Sales & Investment Bank Trading) + (Revenues of Origination & Advisory – Expenses of Origination & Advisory) + (Revenue of Core Banking – Expenses of Core Banking) + (Revenues of other bank business segments like Private Bank or Asset Management – Expenses of other bank business segments like Private Bank or Asset Management) + (other Interest income – other Interest expense) + (other Commission and fee income like – other Commission and fee expense) + other Remaining income + Cash Dividends + Stock Dividends.
Note: 1. a bank’s balance sheet does not contain enterprise inventories, but I consider it is better to write it there; 2. “Other assets” before “Assets for current tax”, “Deferred tax assets”; 3. the equation is a high-level structure, it could be further expanded.
I know, just like you read ABAP, you skipped the complete function module step 3 above. So now read the above equation in step 3 again and concentrate on the signals +/–.
For bank accounting, we just remember:
Everything increase on the left side of the equation with “+”
Everything increase on the right side of the equation with “+”
Besides the rule above, we also know in the equation:
Everything increase on the left side with “–”, write it to Credit-Haben;
Everything increase on the right side with “–”, write it to Debit-Soll;
Everything decrease on the left side with “+”, write it to Debit-Soll;
Everything decrease on the right side with “+”, write it to Credit-Haben.
In double-entry accounting, there is no negative item in accounting entry.
The rule above could help us to understand/remember the principles of bank accounting under IFRS9 and help us to fix accounting settings in SAP Bank modules: BCA, Loans, Collateral, etc.
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