Question

Using the T-accounts of the First National Bank and the Second National Bank given in this chapter, describe what happens when Jane Brown writes a check for $\$90$on her account at the First National Bank to pay her friend Joe Green, who in turn deposits the check in his account at the Second National Bank.

Short answer

T-accounts for the First National bank have a negative value and T-accounts for the second National bank have positive value.

Step-by-step solution

Concept Introduction

A bank is a financial instituiton that extends loans and accepts deposits for households and businesses. It gives guaranteed insurance and supervision. The central bank controls every one of the financial institutions, including the bank.

Explanation

T-account for the First National Bank:

Assets reflect negative $40$in reserves; liabilities reflect negative $40$in checkable deposits.

T-account for the Second National Bank:

Assets reflect positive $40$in reserves; liabilities reflect positive $40$in checkable deposits.

Final answer

First National bank - Negative $40$in reserve and checkable deposits for both assets and liabilities.

Second National banks - Positive $40$in reserve and checkable deposits for both assets and liabilities.