Question

What happens to reserves at the First National Bank if one person withdraws $\backslash (1,100$of cash and another person deposits$\backslash )200$of cash? Use T-accounts to explain your answer.

Short answer

By using T-account we get that

Assets - $\$900$

Liabilities -$\$900$

Step-by-step solution

concept Introduction

A T-account is a balance sheet that expresses the growth of deposits by tracking assets possessed by the bank and liabilities owed by the bank. Since balance sheets must balance, so too, must T- accounts. T-account entries on the asset side must be balanced by an offsetting asset or liability.

Explanation

Reserves drop by $\$200$. The T-account for the First National Bank is as follows:

First National Bank

Assets	Liabilities
Reserves - $\$900$	Checkable Deposits - $\$900$

Final answer

By using T-account we get that

Asset - $\$900$

Liabilities -$\$900$.