If a bank decides that it must write off all or part of the value of a loan, what is the corresponding reduction in a liability entry that the bank makes?

Question

Quizplus · Accepted Answer

When a bank writes off all or part of the value of a loan, it reduces its net worth by the same amount. This is because the loan is considered to be a loss and will impact the bank's overall financial position. Deposits, borrowings, and cash items in the process of collection are not directly affected by a loan write-off.

If a Bank Decides That It Must Write Off All