Question

on 1st january, 2020 mr. thapa started business with rs. 50,000 which he paid into the business account at sunrise bank in surkhet and stock of goods valued rs. 30,000. on the same day, he purchased a motor van from toyota company valued at rs. 25,000 and half of the amount is paid by cheque. the following transactions took place in the month of january: jan. 2 negotiated a loan from sunrise bank for an amount of rs. 30,000 which was granted at an interest of 12% per annum payable monthly. he paid rs. 20,000 by cheque as rent advance to his landlord for the premises of the business covering period of 10 years. jan. 3 purchased goods from sky merchant ltd. valued at rs. 60,000 and paid for half of the amount by cheque, after a cash discount of 4%. jan. 4 purchased office equipment valued at rs. 25,000 and furniture and fittings worth rs. 18,000 paying all by cheque. jan. 8 sold goods valued rs. 12,500 for cash and paid for some stationery valued 1,500 by cash. jan. 10 sold goods to mr. basnet worth rs. 18,000 who paid three quarter of the amount by the chaeque. jan. 13 in order to increase sales, mr. thapa decided to run a promotion from 14th january to 19th january. all sales with cash payment will be given 5% discount and all sales of rs. 10,000 and above will qualify for a trade discount of 6%. jan. 14 mr. sagar came to purchase goods valued at rs. 14,500 and paid half of the amount by cheque after necessary discounts. total cash sales for the day also amounted to rs. 8,500. jan. 15 sold goods valued at rs. 5,000 to miss srijana. jan. 16 total cash sales for the day amounted to rs. 20,000 and cash banked amounted to rs. 25,000. jan. 17 sold goods to star stores worth rs. 16,000 who paid half of the amount by cash. rs. 12,000 is sent from safe to bank. jan. 18 purchased goods from sapana traders valued at rs. 32,500 and paid half of the amount due by cheque after a 5% cash discount. total cash sales for the day amounted to rs. 9,350. jan. 19 sold goods to supriya valued at rs. 24,000 who paid thre​

Answer 1

Singleton Bank's issuance of a loan to Hank's Auto Supply appears as an asset on the bank's balance sheet, increasing deposits and reserves at Hank's bank. The depositary bank, First National, must hold a fraction as required reserves and can lend out the remainder.

Step-by-step explanation:

When Singleton Bank lends money to a business such as Hank's Auto Supply, it records the loan as an asset on its balance sheet. This asset has the potential to generate interest income for the bank. The borrower does not receive this in cash but as a cashier's check, which when deposited, increases both the deposits and reserves of the borrower's bank, First National in this case.

First National, upon receiving the deposit, needs to adhere to reserve requirements set by the central bank, which in this scenario is 10% of the deposits. The remaining 90% of the deposit becomes excess reserves, which First National is free to loan out to other customers. This is how banks create money through the fractional reserve banking system and contribute to the expansion of the money supply in the economy.