November 21, 1908]	THE CHICAGO BANKER	111
(Department of Chicago Banker)
An Open Forum Dedicated to the Associated Chapters A. I. of B. in Which to Advance the Great Movement for Independent Action and Universal Membership
Commercial Balance Sheet as Bankers View It
what constitutes good business morals is a most essential quality in the make-up of a banker, and that it was these factors that enabled the bank of which my friend was a director to escape what otherwise would have been a bad debt.
We now come to a consideration of the second important factor referred to above; namely, “The Financial Standing of the Business/’ In dealing with this subject, I must assume that you are all familiar with commercial accounting, and this leads me to say that if a bank clerk expects to advance his position, it is absolutely necessary for him to study the broad principles of accountancy and commercial law. The tendency of to-day is to specialize, with the result that the bank clerk is apt to become merely a cog in the whole mechanism. In the work in which you are engaged you cannot see much beyond your own desk or the relation of the entries which you put on the books and the transactions which take place in your cage, as they affect other departments in the bank.
As an offset to these conditions and as a valuable preparation for the more onerous duties which you hope to assume in later life, a thorough course in accounting, commercial law and economics will lighten the drudgery of your work, give you a broader outlook and put you on the road to more rapid advancement. In this building, under the auspices of the Northwestern University, a School of Commerce has been inaugurated this year, your chapter having been one of the factors instrumental in its foundation, and I earnestly recommend you to take advantage of the courses of study which this school offers.
You are all probably aware of the manner in which bankers get a line upon the financial standing of their borrowers, but it may be advisable to briefly state the methods commonly in vogue. At least once a year and sometimes more frequently, every borrower is requested to fill up a form of statement of assets and liabilities and to answer certain questions in respect to his business. It must not be supposed that all borrowers consent to fill up this form, and many large corporations ignore the form and in its place present their own statement of assets and liabilities and just as much other information as they may desire, and the competition between banks is such that they will usually only be too pleased to accommodate such corporations. The form used may vary slightly as between banks, and also as to whether the borrower is an individual, co-partnership or corporation, but in a general way the following form may be taken as a standard:
Assets
Cash on hand,	$------
Cash -------------Bank,
Bills Receivable, good, due from
Customers,	------
Bills Receivable due from Partners or
Officers of Corporation,
Accounts Receivable, good, due from
Customers,	------
A valuable paper read before the Chicago Chapter, A. I. B., by Ernest Reckitt, C. P. A. Printed in three parts.
that it is the character of the man, or men, in a business, which must be first considered before the banker makes a loan. Some time ago, in a certain city, there was a large corporation
ERNEST RECKITT Chicago
reputed to be very wealthy, whose balance sheets were beautiful to behold. Their business being large, they were borrowers of some of the largest banking institutions of their city. Apparently without any warning the corporation was declared bankrupt and went into the hands of a receiver. Later investigation showed that the balance sheet was misleading; some people might have called it a worse name; for the assets had been overstated and the liabilities understated. I happened to be in that city at the time of this failure, and meeting a director of one of the banks with whom I was well acquainted, I enquired if his bank had been caught, “No,” said he, “they did try and open an account with us some time ago with the object of becoming borrowers, but we turned them down.” I asked him what reasons he and his colleagues on the directorate had for such action at a time when this corporation was supposed to be so prosperous. “Well,” said my friend, “some time ago it came to my knowledge that this corporation paid no water tax and that its personal property tax was a mere bagatelle to what it should have been, and I figure out that the officers of a corporation that would be guilty of petty bribery would not be good customers for our bank.” So it will be seen that a knowledge of the business morals of the men in your community and a high ideal on your part of
(PART ONE)
Mr. Chairman and Gentlemen:
It may, at first sight, appear presumptuous for a public accountant to come before your society and deliver an address on a subject which supposedly is the sole property of the banker; and furthermore to enlarge on the subject by attempting to present the standpoint of the banker on reviewing the balance sheets of his borrowers, I believe, however, that I can convince you that no apology is necessary, for not only has it been my privilege to come into close touch with many bankers, receiving much benefit thereby, and in some small measure learning how they conduct their business (especially that most important ])art of the banking business, the loaning of their funds), but in my professional work I have had to frequently analyze the statements submitted to bankers and determine their true character. The banker, unfortunately, has too often in these instances been in the position of the playgoer, who sitting in the first balcony, sees nothing on the stage but what is beautiful, the management not desiring his presence behind the scenes. When the public accountant appears, however, he enters by the stage door, he sees the actors and actresses with their paint off, the tawdriness of the trappings, and how the scenic effects are produced.
I will try and describe to you this evening some of the things which take place “behind the scenes,” so that when you become presidents, vice-presidents, directors, and cashiers of banks, your standpoint towards the commercial balance sheet may be that of an intelligent enquirer into all of the facts.
There are, as you know, several factors, concerning a prospective borrower, all of which must be considered, before a banker should be willing to extend credit. These factors may be summarized briefly as:
1.	The man himself, which again can be subdivided under two headings: a. His business morals, b. His ability in and understanding of the business in which he is engaged.
2.	The financial standing of the business, and under this heading we have: a. Its assets and liabilities, b. The profits or losses made in its operation.
You will note that in enumerating these factors I place first, and purposely so, “the man himself,” and I believe that I am correct in stating that bankers are now ])lacing more stress upon this point than ever before. The man of good character and intelligence, who is full of energy and perseverance, will not find it difficult to obtain a reasonable line of credit with his bankers, while the man who is deficient in those qualities, whatever his reputed wealth may be, will be looked upon with suspicion. It therefore behooves you to' become students of human character as well as students of banking, if you are to fill the highest positions within your reach.
These comments may be out of the range proposed by this paper, but I feel that I cannot leave this topic without giving you an illustration of the point I wish to emphasize; namely,