Final answer:
The FASB requires the statement of financial position to include Assets, Liabilities, and Equity. A balance sheet, sometimes referred to as a T-account, is a financial statement that showcases these elements and illustrates the financial status of an individual or entity at a particular moment. Bank capital or net worth represents the difference between assets and liabilities, reflecting the equity interest.
Step-by-step explanation:
The Financial Accounting Standards Board (FASB) establishes standards for reporting information on financial statements. According to FASB, the minimum requirements for the statement of financial position, commonly known as the balance sheet, include Assets, Liabilities, and Equity. These components reflect the basic accounting equation, which states that Assets = Liabilities + Equity. The statement of financial position provides a snapshot of a company's finances at a specific point in time, showing what the company owns and owes, as well as the equity interest of the shareholders.
For example, using the following information: Assets - reserves 30, bonds 50, and loans 50; Liabilities - deposits 300 and equity 30, we can illustrate a simple T-account. The T-account is a balance sheet with a two-column format, with the T-shape formed by the vertical line down the middle and the horizontal line under the column headings for “Assets” and “Liabilities”. In this case, we would list reserves, bonds, and loans on the Assets side and deposits and equity on the Liabilities (and Equity) side.
A bank's T-account similarly lists its assets, such as cash held in vaults and loans made, on one side, against liabilities, like customer deposits, on the other side. The difference between assets and liabilities is the bank's net worth or bank capital. Net worth or equity is critical in a bank's balance sheet because it serves as a cushion against losses and represents the owners' claims on the bank's assets.