Question

Assume that Mr. Johnson receives a check for $1,000 written against bank X. He depositis the...

Assume that Mr. Johnson receives a check for $1,000 written against bank X. He depositis the check into his account in Bank Y. When the check clears, Bank X's:
A. Demand deposit will increase by $1,000
B. Demand deposits will decrease by $1,000
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Answer #1

Mr. Johnson has received a check for $1,000 written against Bank X. This means this check is issued by a customer of Bank X against his or her demand deposit held at Bank X.

So, when this check will clear, the demand deposit of customer who has issued the check will be decreased by $1,000 and Mr. Johnson's account will be increased by $1,000.

The check issuer has account in Bank X.

So, Bank X's demand deposits will decrease by $1,000.

Hence, the correct answer is the option (B).

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