A checking account entry is considered money because it:

• A. can be used directly to make payments and settle debts
• B. is always backed by physical cash in the vault
• C. is recorded as a liability on the bank's balance sheet
• D. represents a company's total assets

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'money' in financial accounting: Money is defined as a medium of exchange that can be used directly to make payments and settle debts. It is not necessarily tied to physical cash but must fulfill the function of liquidity and payment settlement.
2. Analyze the role of a checking account entry: A checking account entry represents funds that are readily accessible for transactions, such as paying bills or settling debts. This aligns with the definition of money as it can be used directly for payments.
3. Evaluate the statement 'is always backed by physical cash in the vault': This is incorrect because banks operate on fractional reserve banking, meaning they only keep a portion of deposits as physical cash and lend out the rest.
4. Consider the statement 'is recorded as a liability on the bank's balance sheet': While true, this does not define why a checking account entry is considered money. It reflects the bank's obligation to repay the depositor but does not directly relate to the usability of the funds.
5. Review the statement 'represents a company's total assets': This is incorrect because a checking account entry does not represent total assets; it only represents the liquid funds available in the account. The correct answer is that it can be used directly to make payments and settle debts.