Question

Which of the following statements is true?

a) Checks that a company has written are shown as credits on a bank statement.
b) Deposits will be shown as debits on a bank statement.
c) Interest revenue will be shown as a credit on a bank statement.
d) Bank services charges are not shown on a bank statement.

Answer 1

The true statement among those given is 'Interest revenue will be shown as a credit on a bank statement.' Other options are incorrect as checks are debited, deposits are shown as credits, and bank charges are also shown on a bank statement. Additionally, interest rates and borrower reliability affect the value of loans in the secondary market.

Step-by-step explanation:

The student's question deals with how different types of transactions and events are reflected on a bank statement. From the provided options, the correct answer is:

c) Interest revenue will be shown as a credit on a bank statement.

This is true because when a bank pays you interest on your deposits, the amount is added to your account balance, representing an increase, which is indeed recorded as a credit. Now, addressing the other parts of the question:

• Checks that a company has written are reflected as debits on a bank statement when they are cashed because they represent money leaving the company's account.
• Deposits made into a bank account are shown as credits on a bank statement because they increase the account balance.
• Bank service charges are usually debited from an account and should be clearly itemized on the bank statement, indicating a fee subtracted from the account balance.

Regarding the additional questions provided:

1. Money listed as assets on a bank's balance sheet may not actually be in the bank because banks use the funds deposited in accounts to extend loans and invest, which means they are not physically present in the bank vault but are rather out in the economy being utilized.
2. If you are buying loans in the secondary market:
   1. You would likely pay less for a loan if the borrower has been late on payments as it represents a higher risk of default.
   2. You may pay less for a loan if interest rates have risen since the loan was made because the loan returns less compared to new loans at current higher rates.
   3. You may pay more if the borrower's firm has declared high profits as it suggests a lower risk of default due to better financial health.
   4. You might pay more for a loan if interest rates have fallen since the loan was made because the loan's fixed interest rate is now more attractive compared to potential new loans at current lower rates.
3. The difference between deposits and loans on a personal balance sheet versus a bank's balance sheet centers on the perspective of assets and liabilities. For an individual, bank deposits are considered assets (money you own), and loans are liabilities (money you owe). For a bank, deposits are liabilities (money it owes to depositors) and loans are assets (money owed to the bank by borrowers).

As for different bank accounts:

• A checking account offers ease of access with various means of withdrawal (checks, debit card) and may pay minimal interest.
• A savings account usually pays some interest and might require physical action (like a bank visit) for withdrawals, although electronic access is often possible.