This article is an unedited draft of a section that would go into the introductory chapter of my banking manuscript. It is somewhat of a placeholder, and I may want to add more information (e.g., have a table that is an actual balance sheet). Given the nuisance value of setting up tables, I will not worry about that until much closer to publication.
"Liabilities are what the firm 'owns' to others. Is 'owns' a typo?
Also with definition of Assets I would add 'owns or has control over' or something like that. For example in Banking the banks hold their deposit liabilities as assets, so the concept of owning assets is not so straightforward.
2) Deposits held at a bank are liability of that bank. Having depositors is an "asset" for the bank in that they are a source of cheap funding and a customer for cross-sold services. Analysts are free to assign a market value to them based on that premise. However, they cannot be accounted for on the balance sheet as assets, as the balance sheet would no longer balance - making a loan would create a loan asset and a deposit asset.
I'm confused by your reply. Firstly, we have to accept Assets comprise Liabilities + Equity. Banks hold deposits as assets and credit the customer liability account (IOU) with the deposit amount:
Reserves debited $10...
Customer credited $10...
In the case of loan:
ASSETS
Loan A/c debited $100
Reserves $10
Total Assets $110
LIABILITIES
Deposits $10
Borrower $100
Total liabilities $110
A = L
I don't understand your '"balance sheet would not balance" comment.
"Liabilities are what the firm 'owns' to others. Is 'owns' a typo?
Also with definition of Assets I would add 'owns or has control over' or something like that. For example in Banking the banks hold their deposit liabilities as assets, so the concept of owning assets is not so straightforward.
1) That was a typo, thanks.
2) Deposits held at a bank are liability of that bank. Having depositors is an "asset" for the bank in that they are a source of cheap funding and a customer for cross-sold services. Analysts are free to assign a market value to them based on that premise. However, they cannot be accounted for on the balance sheet as assets, as the balance sheet would no longer balance - making a loan would create a loan asset and a deposit asset.
I'm confused by your reply. Firstly, we have to accept Assets comprise Liabilities + Equity. Banks hold deposits as assets and credit the customer liability account (IOU) with the deposit amount:
Reserves debited $10...
Customer credited $10...
In the case of loan:
ASSETS
Loan A/c debited $100
Reserves $10
Total Assets $110
LIABILITIES
Deposits $10
Borrower $100
Total liabilities $110
A = L
I don't understand your '"balance sheet would not balance" comment.