Proportion of assets to criticism as the above becomes particularly pertinent when we see how small a propoi Lion is maintained between the total liquid assets and the liabilities. In view of the growing public affection for the mammoth joint-stock banks, it is curious to note that the highest proportion is that of a well-known private firm of City bankers, whose balance-sheet for June 1900 shows a proportion of nearly 62 per cent. ;the four best joint-stock banks from that point of view in Decem ber 1,900 decreasing from a lower figure than the above to 49'19 per cent., whilst the rank and file of such banks go down so low as 17'18. And these are the total liquid assets made up of the three different classes of assets already considered in detail—the 62 per cent. total including about 21 per cent. of cash in hand, and about 41 per cent. of investments ; the 49'19 per cent, example, 18.48 per cent. of cash in hand, 16 per cent. of money at call, 1411 per cent. of investments ; whilst the per cent. bank is so low as to have no cash in hand at all, 8.94 per cent. of money at call, and per cent. of investments. In this connection it is instructive to refer to the article on the BANK RETURN and note how the Bank of England is adversely criticised when its reserve of actual gold and bullion in hand is so low as 481 per cent. How necessary it is, therefore, that an eye should be kept upon the investment item in a bank's balance-sheet, when that item represents the most considerable part of an already too low reserve.
The items bills and advances should always be kept distinct ; the bills first, being a better security and generally met at maturity, and the advances second, the repayments of which are not usually so prompt ; but on no account should these two items be included amongst the former so as to im properly swell the amount of liquid assets. The liability of customers on acceptances, the subject of the next item, is the corresponding entry to the acceptances referred to on the other side of the balance-sheet. As to the bank premises, little need be said except that their value would be doubtful if they became vacant in consequence of the bank being forced to give up possession as a result of failure, but in any case part of the profits ought to be applied to their account by way of sinking fund or otherwise.
But there is one item we have left until -the last ; that of the capital paid up. Of course, if the bank is working at a loss, or loses heavily as a consequence of a run or a financial crisis, this will soon go, but in the meanwhile it is a valuable provision for the customer. More valuable, however, is the uncalled capital which does not appear in the balance-sheet itself, though it is probably mentioned in the heading. It has &lready been referred to in the article on BANK SHARES as a reason why the small capitalist should avoid them. To the bank customer it is a solid guarantee against loss, and its amount is always easily ascertainable. One bank, with a total capital of nearly sixteen millions, has nearly thirteen uncalled ; another, with a capital of fourteen millions, has over eleven uncalled ; and in much the same proportion is the uncalled to the paid-up capital in all the leading banks.
Of companies and private preparation of an annual balance-sheet and its circulation among the shareholders is made compulsory in the case of a company, other than a private company, having a share capital, by the Companies Act, 1908. It is not in the same way compulsory in the
case of private traders, but apart from the desire which every man of business should have to know accurately his financial position, it is necessary for such a trader to keep proper Woks, and inferentially to prepare a balance-sheet ; not to do this would be to render himself amenable to the bankruptcy laws. It is, moreover, of considerable advantage to him if he should wish to make arrangements for an overdraft with his banker ; the latter being accustomed to place great faith upon the balance-sheet of a customer whom they know to be personally of good business character. In case of making any post nuptial marriage settlement, or any voluntary settlement or of his property, such as by way of gift, his balance-sheet for the time being will be valuable evidence that he was in a position to make such a settlement or disposition of his property. Again, on the sale of his business, or when taking in a partner, the balance-sheet would be the central point of in vestigation. On the previous page we set out a suggestive form of balance sheet applicable to the business of a limited company ; this being equally useful to a private trader, the only material variation being in itei• I., which in his case would not be so complicated.
The compulsory balance-sheet of a company must be completed within seven days after the fourteenth day after the annual first or only ordinary general meeting, and, duly signed by the manager or secretary, must be forwarded to the registrar of companies. It must be audited by the com pany's auditors, contain a summary of the share capital, liabilities, and assets, giving such particulars as will disclose the general nature of those liabilities and assets, and how the values of the fixed assets have been arrived at. But this balance-sheet need not include a statement of profit and loss. A penalty of £5 per day is incurred by default. In a the capital account represents all the money invested in the business otherwise than by way of temporary loan. The reserve fund depends upon the nature of the business ; if it is one in which there is little property, plant, or stock, and depends mainly upon dealings in a stock that goes in and out at very short intervals, as in the case of a coffee-shop, or upon personal efforts, the reserve fund should aim at reaching the same amount as the capital originally invested. There are, of course, businesses in which such a reserve fund ould not be needed ; but in every case there is depreciation in buildings, plant, or stock to be guarded against. The principles upon which such a fund may be built up will be found in the articles on SINKING FUNDS, AMORTI SATION, and ANNUITIES. Bad and doubtful debts should also come within the scheme of a reserve; and income-tax is a liability NI 111C11 should be accounted for before the final balance is struck. The principles of criticism of a balance-sheet are the same in all classes of undertakings, and this second part of our topic may be very well considered in the light of the criticism already made in the case of the balance-sheet of a bank. Reference should also be made, on the whole subject, in addition to the articles relating to banking, to those on AUDIT ; BOOK-KEEPING ; and PROFIT AND LOSS.