When a Bank Has Short-Term Liabilities That Are Greater Than

question 76

Multiple Choice

When a bank has short-term liabilities that are greater than its short-term assets,but overall its assets are greater than its liabilities,the bank is considered:

• A) solvent.
• B) insolvent.
• C) liquid.
• D) illiquid.

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Definitions:

Net Method

An accounting technique where discounts for prompt payment are calculated and recorded immediately, reducing the purchase cost of inventory.

Allowance for Sales Discounts

An account used in bookkeeping to estimate the reduction in revenue due to sales discounts that customers are expected to take advantage of.

Accounts Receivable

Debts owed by customers to a business for items or services that have been furnished but not compensated.

Sales Discounts

A reduction in the price of goods sold, offered by the seller to the buyer, often to encourage prompt payment.