Credit Control

Credit control is one of the principal functions of the central bank. Credit money expands through commercial banks by means of cheques. Credit plays an important role in maintaining and changing the price level as a medium of exchange. It is the responsibility of the central bank to regulate the volume of credit and its direction to maintain stability of the price level.

Credit control means, regulating the volume and direction of bank loans. On the volume of credit depends largely the level of employment and the level of prices in the country.

Secondary Functions of Commercial Banks

Secondary functions are two types:
1. Public utility services
2. Agency services

Public Utility Services: The commercial bank renders money services for the general utility of the community. These services may be enumerated as follows:

• Bank drafts and cheques issued on banks are freely used for receipts and payments in the society. These cheques and drafts economies the use of currency notes and coins for transacting business.
• Commercial banks play a significant role in transferring money. This service is reliable, quick, safe, and inexpensive.
• Commercial banks also issue Letter of credit. It is an open latter from a bank requesting the sellers to send the goods to the buyer and promises to pay the sum by itself.
• Banks offer lockers for the safe custody of precious items. The bank also charges some amount.

Agency Services: Commercial banks also perform the duty of an agent. It collects and pays on behalf of their customers in respect of the following:

• Businessman receives cheques in payment from other parties. These cheques may be drawn on other banks than theirs. They deposit these cheques and with their banks and get the payment. The bank also receives payments against electricity, gas, phone bills from customers. It also receives and pays premiums, dividends, interests, and rents on behalf of its clients. This is most valuable service that the bank performs for its clients.
• On the instructions of its clients the bank buys and sells shares and bonds on the stock exchange.

Primary Functions of Commercial Banks

Functions of commercial banks can be divided in to two categories:
1. Primary functions
2. Secondary functions

Primary functions can further be subdivided into the following:
1. Receiving deposits
2. Advancing Loans

1. Receiving Deposits: This is the function of the formation of capital. A commercial bank receives deposits through different types of accounts. Small savers, salaried people, traders, manufacturers and other deposit their money with the bank under the head of savings, current, or fixed deposit accounts and earn interest income.

2. Advancing Loans: The commercial bank finances the need of businessman in meeting their day to day business requirements. Advances form about sixty percent of investment made by a commercial bank. It is most profitable on the part of the bank.

In our next post, we will describe the secondary functions of Commercial banks.

Chart of Accounts

Chart of Accounts is grouped into five main categories:
1. Assets
2. Liabilities
3. Capital
4. Expenses
5. Revenues

Assets:
Assets are the recources of business, which a business utilizes to get future economic benefits. Assets are sub-grouped into two categories:
1. Current Assets
2. Fixed Assets

Current Assets:
Current Assets are recources, which a business usually utilizes with a year. Some of the current assets are: Cash in hand, Cash at bank, Bills Receivable, Notes Receivable, Inventory etc.

Fixed Assets:
Fixed Assets are recources of business, having a life more than one year. The assets purchased for resale are not included in Fixed Assets. Some of the fixed assets are: Land, Building, Machinery, Furniture etc.

Liabilities:
Liabilities are the Debts. Some of the examples of Liabilities are:
* Accounts payable- the parties from which goods are purchased on credit.
* Loan from Bank- usually provided by Commercial Banks.

Capital:
Capital is the amount which owner provides for operating business activities. Capital is increased when recources of business are increased when Owner additionally invests cash or other asset and the business earn profit.

Expenses:
Cost intended to benefit the near future like, Salaries, Rent, Bank charges etc.

Revenues:
The term Revenue stands for sale of product, service and merchandise or earnings from interest, dividends, rent etc, or gains from sale or exchange of assets. Some of the revenues are sales, rent income, commission income etc.