Question

Contrast how a depositor's account is classified by a bank compared to how it is classified by the account owner by completing the following sentence. A depositor's account is a(n) (liability/asset/expense) on the bank's records, but it is a(n) (liability/asset/expense) on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank (debits/credits) the account owner's account.

Answer 1

A depositor's account is a liability on the bank's records, but it is an asset on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank credits the owner's account.

Step-by-step explanation:

A liability is a debt that a person or company owes to another party, usually in the form of money. Therefore, a depositor's account shows the amount the banking is owing the depositor. This makes it a liability.

An asset is any resource that a business or economic entity owns or controls, such as money. Therefore, a depositor's account shows the amount a depositor has in the bank or the amount the bank is owing him. This therefore makes it an asset.

According to accounting principle, all assets must be debited while liabilities must credited. Since a deposit a liability to the bank, the bank credits the owner's account every time the account owner makes a deposit.

Therefore, a depositor's account is a liability on the bank's records, but it is an asset on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank credits the owner's account.