If a bank borrows $550,000 from the FED on Friday and repays it on Monday show how it should be written on a T-account for this transaction
To understand how this transaction should be recorded on a T-account, let's first go over the basics. A T-account is a simplified representation of an account used in accounting. It consists of two vertical columns, with the left side representing debits (increases in assets or expenses) and the right side representing credits (increases in liabilities, equity, or revenues).
In this case, the bank is borrowing $550,000 from the FED (Federal Reserve) on Friday and repaying it on Monday. Let's break down the transaction and record it on the T-account:
1. Friday (Borrowing):
On Friday, the bank receives $550,000 as a loan from the FED. Since it is a liability for the bank, we need to record it on the credit side of the T-account.
T-account:
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Liabilities | $550,000
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2. Monday (Repayment):
On Monday, the bank repays the borrowed amount of $550,000 to the FED. This repayment will decrease the bank's liability, so we need to record it on the debit side of the T-account.
T-account:
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Liabilities | $0 (balance)
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By Monday, the bank has fully repaid the $550,000 loan, resulting in a balance of $0 on the liability side of the T-account.
It's worth noting that T-accounts are a simplified representation, and in an actual accounting system, there would be corresponding entries on the bank's balance sheet to reflect this transaction.