Question

Interest earned on the cash balance in the bank is recorded by the bank as:

a. An increase in the banks asset account.

b. A decrease in the banks asset account

c. A decrease in the depositors bank account

d. An increase in the depositors bank account

e. An increase in the banks expense account

Answer 1

Answer is option e - An increase in the banks expense account.

All other options are wrong because -

option a - it can not result in an increase in the banks asset account. As interest earned on the cash balance in the bnak will result in increase in banks expense account and it will not impact asset account.

option b - it can not result in an decrease in the banks asset account. As interest earned on the cash balance in the bnak will result in increase in banks expense account and it will not impact asset account.

option c & d - it is an expense and can not impact depositors account.