Bank Cost Accounting

4758 Words Jul 17th, 2012 20 Pages
elevance of Managerial Concepts in the Banking Industry by Zabihollah Rezaee Ph.D., CPA, CMA,
INTRODUCTION In the past, bank accountants paid little or no attention to the use of managerial accounting concepts in the banking industry. Viewing managerial accounting from the perspective of the banking industry provides a unique opportunity to explore the development of the internal reporting structure. While the use of internal cost and profitabiHty reports is widespread in merchandising, manufacturing, and other service industries, banks have historically focused only on overall profitability. The reason is simple. In the past, interest rates, branch locations, and service offerings were heavily regulated by the government; banks had little
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Roosevelt Joseph G. and Johnson, David H. ttl. "Managing Prontability Information; How to Develop a Framework for Success," Bankers Monthly Magazine, f^pnl 1986, pp. 30-31. 4. Faletti, Peter F., "Are Your Branches Profitable? Do You Really Know?" Savings Institutions, October 1986, pp. 88-95. 5. Chisholm, R.W., CA. and Duncan, G.K., "A Product Profitability System for Improved Decision Making," The World of Banking, January-February 1985, pp. 27-33. 6. Faletti, loc. cit., p. 90.

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JOURNAL OF PERFORMANCE MANAGEMENT

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ferent from manufacturers and merchandisers because they have no inventory of goods (other than supplies). Thus costs are charged to responsihility centers for performance evaluation. In a hank, for example, costs are charged to operations centers such as lending departments. Allocations are made from operational centers and non-revenue recording responsihility centers to revenue recording centers or profit centers. Allocations to profit centers include the expenses of operational support areas, administrative overhead areas, and charges for the use of funds that were raised hy other areas of the hank. Profit center reporting provides a foundation for responsihility-based hudgeting and, therefore, establishes a basis for measuring

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