Final answer:
The student's task involves creating a bank reconciliation and a T-account balance sheet for a hypothetical bank. The bank has various assets and liabilities that need to be accounted for to determine its net worth, which is calculated by subtracting liabilities from assets. These practical applications are essential for financial accuracy and management.
Step-by-step explanation:
The student's question is about preparing a bank reconciliation and setting up a T-account balance sheet for a hypothetical bank. The process involves comparing the company's cash records (as per its books) with the information on the bank statement to identify any discrepancies. To perform a bank reconciliation, adjustments for any outstanding checks, deposits in transit, bank errors, or book errors are accounted for. In creating a T-account for the bank, we list assets on the left side and liabilities on the right side, with the difference representing the bank's net worth.
For the bank with deposits of $400, we would set up the T-account as follows:
- Assets: Reserves ($50) + Government Bonds ($70) + Loans ($500)
- Liabilities: Deposits ($400)
The assets total $620 ($50 + $70 + $500) and the liabilities total $400, so the bank's net worth would be assets minus liabilities, which is $220 ($620 - $400).
This exercise is crucial for businesses to ensure the accuracy of their financial records and for the proper management of their cash flow. Banks must also maintain accurate balance sheets to reflect their financial health and comply with regulatory requirements.