Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

When a bank is required to hold more money in reserve, which of the following is most likely to occur?

The bank will be able to pay higher interest on deposits.

The bank will increase its long-term liabilities.

The bank's total assets will automatically increase.

The bank will have less money available to lend, reducing its liabilities.

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Verified step by step guidance

Understand the concept of reserve requirements: Reserve requirements are regulations set by central banks that require banks to hold a certain percentage of their deposits as reserves, either in their vaults or at the central bank. This ensures liquidity and stability in the banking system.

Analyze the impact of increased reserve requirements: When reserve requirements are increased, banks must hold more money in reserve and have less money available to lend. This directly affects their ability to generate income from loans.

Evaluate the relationship between lending and liabilities: When banks lend money, they create liabilities in the form of deposits for borrowers. If lending decreases due to higher reserve requirements, the bank's liabilities will also decrease.

Consider the effect on interest payments and total assets: Higher reserve requirements do not directly enable banks to pay higher interest on deposits or increase their total assets. Instead, they restrict the bank's ability to use funds for lending or investment purposes.

Conclude the most likely outcome: Based on the analysis, the correct answer is that the bank will have less money available to lend, reducing its liabilities. This aligns with the impact of increased reserve requirements on the bank's operations.