Question: Achieving Dreams with the Bank of America Your first home. A new car. Opening your own business. Sending a child to college. Many of the dreams we share require that we borrow money. That's how Bank of America helps people achieve their dreams. Through a national network of more than 16,000 ATMs and 5,700 branches, Bank of America is there to ensure that individuals, companies, and even government agencies have access to financial resources and services. Bank of America is in the business of loaning money to its customers. In return, Bank of America expects the borrower to periodically pay interest on the loan until the loan matures. Interest income for a bank is equivalent to inventory sales of a retail company. The timing of when interest is earned and recorded in the accounts is a significant issue for any bank. Interest income is earned each day a loan is outstanding, regardless of when the borrower pays the interest. As a result, banks must record the interest income earned, but not yet collected, in order for its financial statements to be in accordance with generally accepted accounting principles.
Critical Thinking
1. Banks make loans to individuals, companies, and many other groups, including cities. Why would a city need to borrow money?
2. If you borrow money, how is the interest rate usually stated?