Pooled Cost of Funds

Pooled cost of funds is an accounting formula that is used to find out the cost of the funds. In order to determine the pooled costs of the funds the financial statement of the business entity is used. The financial statement that is used is the balance sheet of the business entity. In this process the balance sheet is divided into a number of different categories with respect to the specific interest earning assets. The balance sheet is categorized on the biases of interest earning asset so that these assets are letter matched with their corresponding interest earning liabilities.

While calculating and determining the pooled cost of funds those interest earning assets and interest earning liabilities are matched with each other that have a similar time horizon or the identical accounting period. The pooled cost of funds also considers debt and credit of the business entity. The debt and credit are associated to the assets and liabilities depending upon the income or revenue they incurred or the expenses they are costing. While calculating the pooled cost of fund also takes into account the banks and the reserve costs related to the business entity. This is done because the banks are required to keep the pooled cost of funds as a percentage of their deposit.

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