UNIT VII: THE BASICS OF BANK ACCOUNTING

Question 1

how banks make profits by transforming the liabilities into assets

Answer 1

ASSET TRANSFORMATION

Question 2

a way of describing the process of asset transformation is to say that banks “_____ short and ______ long”

Answer 2

borrow short and lend long

add: long-term loans using short-term deposits

Question 3

THE BASICS OF BANK ACCOUNTING

a visual representation of individual accounts so that all additions and subtractions (debits and credits) to the account can be easily tracked and represented visually

Answer 3

T-ACCOUNT

Question 4

THE BASICS OF BANK ACCOUNTING

left side of t-account is for?

Answer 4

DEBIT

Question 5

THE BASICS OF BANK ACCOUNTING

right side of t-account is for?

Answer 5

CREDIT

Question 6

DEBIT OR CREDIT

increase in asset

Answer 6

DEBIT

Question 7

DEBIT OR CREDIT

decrease in asset

Answer 7

CREDIT

Question 8

DEBIT OR CREDIT

increase in expense

Answer 8

DEBIT

Question 9

DEBIT OR CREDIT

increase in liability

Answer 9

CREDIT

Question 10

DEBIT OR CREDIT

increase in equity

Answer 10

CREDIT

Question 11

DEBIT OR CREDIT

increase in income

Answer 11

CREDIT

Question 12

DEBIT OR CREDIT

decrease in liability

Answer 12

DEBIT

Question 13

DEBIT OR CREDIT

decrease in equity

Answer 13

DEBIT

Question 14

DEBIT OR CREDIT

decrease in income

Answer 14

DEBIT

Question 15

DEBIT OR CREDIT

decrease in expense

Answer 15

CREDIT

Question 16

how is cash deposits in a savings account in the bank recorded in the accounting equation?

Answer 16

increase in cash (assets)
increase in on-line account (liabilities)

Question 17

how is a check issued by another person/company to be deposited under the accountholder’s checking account recorded in the accounting equation?

Answer 17

increase in branch clearing account (assets)
increase in demand deposit account (liabilities)

Question 18

how is cash withdrawal from a savings account in the bank recorded in the accounting equation?

Answer 18

decrease in cash (assets)
decrease in on-line account (liabilities)

Question 19

how is cash withdrawal from a checking account in the bank recorded in the accounting equation?

Answer 19

decrease in cash (assets)
decrease in demand deposit account (liabilities)

Question 20

how is encashing check issued by another person/company recorded in the accounting equation?

Answer 20

decrease in cash (assets)
increase in branch clearing account (assets)

Question 21

account titles used

Answer 21

• cash
• on-line account
• demand deposit account
• branch clearing account

Question 22

ASSETS, LIABILITIES, OR CAPITAL?

on-line account

Answer 22

LIABILITIES

Question 23

ASSETS, LIABILITIES, OR CAPITAL?

demand deposit account

Answer 23

LIABILITIES

Question 24

ASSETS, LIABILITIES, OR CAPITAL?

cash

Answer 24

ASSETS

Question 25

ASSETS, LIABILITIES, OR CAPITAL? branch clearing account

Answer 25

ASSETS