<u>The owners of the bank borrow $100 to supplement their existing reserves, this would increase the reserves account and increase the account of liability.
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Further Explanation:
Reserve account:
Reserve account refers to a huge amount of money put aside for the future needs, expenses, and contingencies liability that may or may not occurred in the future. The banks make a cash reserve requirement and statutory requirements to fulfill the criteria of a central bank for doing this the banks have to put aside borrows amount of money. This money can be used for future needs.
Liability account:
The liability account is a section that shows how much the bank has to pay back in the market. It shows about from whom the bank borrowed money and how much amount of money borrowed from the public, other banks, and institutions. If the liability is more than the value of assets of the bank, it may assume that thebank may be bankruptcy soon.
As the owner of the bank borrows $100 to increase their existing reserves, it will increase the liability of the bank and payment may be more than it. The interest charged on this amount that in the liability account. The amount of actual liability varies according to the interest charged on this amount.
Learn more:
1. Learn more about federal reserve bank
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2. Learn more about tax liability
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3. Learn more about the net income
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Answer details:
Grade: Middle School
Subject: Accounting
Chapter: Assets and liabilities
Keywords:owners of the bank, borrow $100, to supplement, reserves, would increase, reserves account, liability account, cash reserve and statutory requirements, borrowed money.
