Question

Explain the difference between the two methods used to prepare the operating section of the statement of cash flows. How do the results of these two approaches compare?

Answer 1

Bank deposits and loans can be characterized differently on personal balance sheets compared to a bank's balance sheet. On a personal balance sheet, bank deposits are considered as assets, while loans are considered as liabilities. For banks, deposits are considered as liabilities, while loans are considered as assets.

Step-by-step explanation:

Bank deposits and loans can be characterized differently on personal balance sheets compared to how a bank would characterize them on its balance sheet.

On a personal balance sheet, bank deposits would be considered as assets, as they represent money that an individual has in a bank account. Loans, on the other hand, would be considered as liabilities, as they represent money that an individual owes to the bank.

For a bank, deposits are considered as liabilities, as they represent the bank's obligation to return the deposited money to the account holders when requested. Loans, on the other hand, are considered as assets, as they represent the money that the bank has lent out and expects to receive back with interest.