Final answer:
Assets and liabilities are carried forward to the next financial period on the balance sheet to reflect the continuous financial state of a business, its controlled resources, and obligations. The balance sheet ensures that the bank's net worth is accurately tracked over time, accounting for the asset-liability time mismatch in financial operations.
Step-by-step explanation:
Assets and liabilities are brought forward into the next financial period to ensure that the financial statements reflect the ongoing operations and financial position of the business. Assets such as financial instruments, bank reserves, and loans made by the bank represent resources controlled by the bank and are expected to provide future economic benefits.
Liabilities, including deposits made by customers, represent obligations that the bank must meet. The balance sheet, a fundamental accounting tool, captures this information at a point in time and carries it forward to subsequent periods. This continuity is essential because both assets and liabilities can have a lifespan that extends beyond a single financial year. For example, a loan may be repaid over several years, which impacts the bank's financial position over multiple periods.
Furthermore, assets are not always physical cash present in the bank due to the asset-liability time mismatch, where customers can withdraw the bank's liabilities in the short term while assets like loans are repaid in the long term. Therefore, the process of bringing assets and liabilities forward into the next financial period is central to accurately tracking the bank's net worth and ensuring that its balance sheet remains balanced, with assets equating to liabilities plus net worth.