I am watching the Khan Academy Banking Video Series: (https://youtu.be/On3c86V5A_E) . (https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/money-and-banking/banking-and-money/v/banking-7-giving-out-loans-without-giving-out-gold?modal=1)

If a person who is being loaned money opens a checking account at the very same bank that loaned it to him.. why is that a liability on the bank's balance sheet? Aren't liabilities only what the bank would owe to others (such as its customers who save their money in the bank and are hence loaning it to the bank?)........... I understand that the concept of making it so that the money never has to leave the bank means that the person taking a loan from the bank just opens up a digital checking account, etc.. but Sal never made a mention that technically that checking account isn't a liability even if he's drawing/representing it on the liabilities-side of the balance sheet (the righthand side)

I would've posted a question in the khan academy website's comments, but these videos are quite old (and so are the comments) and from my previous experience my questions don't get replied on in those type of contexts on the khan academy website. Thus, I am asking on here. ..... If this is the wrong place to post this, please let me know and direct me to where it should be posted. Thank you so much for your time, everyone!


1 Answer 1


A checking account is considered a liability because bank essentially owes the amount on the checking account to the owner of the account.

If a bank loans someone money that is considered an asset on the banks balance sheet but if that person decides to open checking account at the same bank checking account becomes liability. The loan will still be recorded as an asset on balance sheet but the new checking account is still considered a liability because the money in it belong to the borrower.

Also purpose of accounting is to track all asset and liability and equity changes. Even if a company would borrow money to company it itself owns - which is more or less economically just juggling money around, it needs to be recorded in accounting.


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