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

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Which of the following best describes how a bank typically makes a profit?

By selling inventory at a markup

By issuing common stock to the public

By only charging service fees on checking accounts

By earning interest on loans that exceeds the interest paid on deposits

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Verified step by step guidance

Understand the role of a bank in the financial system: Banks act as intermediaries between depositors (who provide funds) and borrowers (who need funds). They manage deposits and loans as part of their core operations.

Recognize the concept of interest: Banks pay interest to depositors for the funds they hold and charge interest to borrowers for the loans they provide. The difference between these interest rates is key to their profitability.

Learn about the interest rate spread: The interest rate spread is the difference between the interest earned on loans and the interest paid on deposits. This spread is a primary source of income for banks.

Consider additional revenue sources: While banks may charge service fees on checking accounts or engage in other activities, these are typically supplementary to the primary method of earning profit through interest rate spreads.

Conclude that the correct answer is: 'By earning interest on loans that exceeds the interest paid on deposits,' as this describes the fundamental way banks generate profit in their business model.