Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

The Credit Expansion Process 175Soon afterward, Bank A must in turn honor the contract itentered into with the original lender, returning to him the1,000,000 m.u. its managers had committed to pay at the endof one year, along with 10 percent interest. The entries are asfollows:(4) Bank ADebitCredit1,000,000 Loan received Cash $1,000,000(Repayment)100,000 Interest payment Cash $100,000(Expenses for theyear)In other words, the bank repays the loan, records the outputfrom its cash account of the 1,000,000 m.u. received fromBusiness Z and adds to that sum the 100,000 m.u. (alsocharged to the cash account) in agreed-upon interest it paysthe original lender. On the bank’s income statement, this interestis registered as a charge in the form of interest paymentsmade during the year.After these entries, at the end of the year, the bank’sincome statement would appear as follows:(5) Bank AIncome Statement(During the Year)ExpensesRevenuesInterest paid 100,000 Interest Received 150,000Net income 50,000Total Debit 150,000 Total Credit 150,000