Final answer:
The asset account increases when a company purchases supplies on credit, as supplies are added to the company's assets. In the context of Acme Bank's balance sheet, after selling Treasury bonds to the Fed, reserves would increase and bonds would decrease by $10 million with the potential for the loans category to similarly increase if these funds are turned into new loans.
Step-by-step explanation:
When a company purchases supplies on credit, the asset account on the company’s balance sheet increases. This is because supplies are considered an asset, and purchasing them on account (payable) means that while cash is not immediately disbursed, the supplies are still added to the company’s assets. On the other side of the equation, there is an equal increase in liabilities, specifically in accounts payable, reflecting the credit aspect of the transaction.
Example: The initial balance sheet of Acme Bank shows Assets - reserves at 30, bonds at 50, and loans at 50; Liabilities include deposits at 100 and equity at 30. Following the Federal Reserve's open market purchase of $10 million in Treasury bonds from Acme Bank, we can anticipate a reduction in the bonds asset by $10 million, while reserves increase by the same amount. If Acme Bank converts the bond sale proceeds to new loans, the loans category in its assets would increase accordingly. Since deposits and equity remain unaffected by this transaction, there would be no change in the liabilities column in the immediate aftermath of the sale.