What are financial services?
Financial services are the economic services provided by the finance industry, that includes varieties of businesses to manage money, including credit unions, banks, credit-card companies, accountancy companies, consumer-finance companies, stock brokerages, insurance services, investment funds. The commercial bank is the simplest and most popular financial services structure available.
The commercial bank lends money directly to the business, helps to raise money from other firms in the form of debt or equity. The primary operations of commercial banks include:
- Lending money in the form of personal loans, commercial loans and mortgage loans that includes property loans.
- Issuing credit cards and processing of credit card transactions.
- Issuing debit cards and maintenance of ATM related transactions.
- Provide the services of remittance.
Financial services provide services by putting the money of its customers into productive use. Financial services provide services to its customers at large. Hence, cost of services needs to be computed instead of cost of goods sold. Financial services company provides services in the form of providing loans, accepting deposits and other auxiliary services.
Cost of services rendered for Financial services company
Financial services organizations provide services or products and are rarely involved in selling of goods. Hence, cost of services rendered would be equivalent for COGS for such companies. Since, there are various forms in financial services-based companies, we would look into commercial banks for example to look at the costs. The various costs in commercial banks are as follows:
This item generally includes interest paid on liabilities; fee expenses related to borrowing operations and may include in some cases the difference between the issue price on debt
instruments and their par value. This is also called cost of borrowings for banks and financial institutions. The banks therefore try to reduce interest expenses as much as possible by creating deposits as much as possible.
This would include the cost of all the working employees and staff on payroll. Various statutory obligations such as provident fees also have to be paid on the salary of employees. These include Annual salary, national insurance, pension contributions, employer contributions for NI and pension, any other contractual payments included in the employee contract.
Few upper rated commercial banks pay administrators and clerical staff as well as accounting and human resources personnel. They tally up the cost of any benefits you provide to these staff members, such as healthcare and dental insurance, vacation and sick time, contributions you make to retirement programs and training, to get the complete picture.
Fees and commissions payable
The commercial banks hire intermediary organizations to sell their insurance products and others. The merchant commission is also paid sometimes on credit card transactions. Bank commission includes a fee a bank charges for a service, like withdrawing cash from an ATM that does not belong to your bank or transferring money to someone.
Statement of Cost of Goods sold
|Fees and commission
|Cost of services rendered