If it could be concretely shown that an account, with a certain degree of activity, must carry a certain balance, the bank could more easily convince customers of the justice of requiring big balances, of not paying interest on balances, and of assessing upon small accounts a monthly service charge. Cost accounting also gives bank officers concrete facts supplementing those of the credit department as to the desirability of certain accounts and as to quantity or lines of service that may be extended to the customer.
Cost of Handling an Account To give in detail a cost accounting system applicable to bank accounts is beyond the compass of this book; a brief suggestive outline only may be given. The problem is to find the costs occasioned to the bank by each depositor and the profits result ing from that account. The costs embrace the special expense occasioned by handling the account plus a proper proportion of the general and fixed expense of running the bank. Certain departments serve directly certain depositors, and the expense of these can be allocated to those depositors upon the basis of: (a) The labor expended for each depositor.
(b) The number of items handled for each.
(c) The balance to be administered for each.
Other departments, however, are run for general service and their expense cannot be so readily allocated.
Dividing the expense of any department of the former class by the number of items handled gives the unit of cost of handling each item in the department; to determine the expense of any department would require adding the direct expense of the de partment and a fair proportion of the fixed, overhead, and general expenses of all departments of this class. What is a fair propor tion would be based on floor space, desk room, officers' time, the ratio of the direct expenses of the department to the total direct expense of all departments of the class, or some other criterion. The rest of the general and fixed bank expense would be divided by the total average balances of all depositors. This quotient added to the quotients, found in the manner described above, for the various departments would give the total average cost of handling an item. Multiplying this item cost by the number of items handled for a depositor would give the cost of the account to the bank so far as these items are concerned. To this amount
must be added the exchange charges paid for handling the coun try items for the account and the interest paid on the average balance, if it be an interest-bearing account.
Profit on Handling an Account To determine the profits of an account to the bank, two sources are to be considered : (I) the amount of exchange charges earned by the account, and (2) the available loanable balance multiplied by the average loan rate of interest. To find the available balance, certain deductions must be made from the average ledger balance: (I) the sum of immediate credit entries for items deposited must be reduced by the average amount con tinually outstanding in process of collection; and (2) the average cash reserve required by law must be subtracted. The sum of the exchange charges and of the interest and of any other profits accru ing directly from the account is the gross earnings of the account.
Because of the difficulty and expense of apportioning the fixed and overhead expenses, and even the operating expenses, very few banks bother with a detailed cost accounting system; and so they delegate the work of finding a rough approximation of profits of the accounts to the analysis desk of the transit de partment, because of its close contact with items received and sent. The analysis sheet of this desk usually contains some such tabulation as that shown in Figure 25.
The average amount outstanding during the month is figured by multiplying the footing of each column of the analysis sheet by the number of clays for that column, and dividing the whole total of all the columns by the number of clays in the month. The balance available for loans is found by deducting the average amount of items outstanding and the reserve required.
3. Watching the Balances of Accounts. The analysis desk watches carefully the balance of accounts, comparing those of the current period with those maintained in the past. When an account shows an unusual falling off in its balance, that fact is brought to the attention of the officer in charge of that district.
Sharp increases are similarly reported. The reports are state .