Question

A credit memorandum notifies the depositor that the bank has deposited funds into the depositor's account; an example is the collection of a note receivable by the bank for the depositor. A bank may issue a credit memorandum for:

a) Reducing a customer's account for an NSF check
b) Notifying the depositor of a decrease in interest rates
c) Increasing the depositor's account for a dishonored note
d) Notifying the depositor of a loan approval

Answer 1

A bank issues a credit memorandum to reflect an increase in a depositor's account, such as the collection of a note receivable. Reducing an account for an NSF check, notifying of a decrease in interest rates, or a loan approval do not result in a credit memorandum, as they do not involve an increase in funds.

Step-by-step explanation:

A credit memorandum notifies the depositor that the bank has deposited funds into the depositor's account. This is a common transaction in banking when the bank acts on behalf of the depositor to collect funds, such as from a note receivable.

When considering which situations involve a bank issuing a credit memorandum, it's important to note that these memos reflect an increase, not a decrease, in the depositor's account. Therefore, the bank may issue a credit memorandum for increasing the depositor's account, like when it collects on a note receivable on behalf of a customer, but not for reducing it due to an NSF (non-sufficient funds) check, notifying of a decrease in interest rates, or notifying of a loan approval. In the context of a transaction where funds are added to the depositor's account, the correct example from the given options would be:

c) Increasing the depositor's account for a dishonored note, as the bank would add funds to the depositor's account reflecting the collection of the amount due on the note.