Final answer:
Double-entry bookkeeping records every transaction twice, ensuring the accounting equation stays balanced. The T-account displays assets on one side and liabilities plus equity on the other. A positive net worth indicates a healthy business, while a negative one suggests bankruptcy.
Step-by-step explanation:
Double-entry bookkeeping records every financial transaction twice, once as a credit and once as a debit, to ensure the accounting equation assets = liabilities + equity always remains balanced. The T-account is a visual representation of individual accounts in double-entry bookkeeping, depicting assets on the left side and liabilities and net worth or equity on the right side. For instance, in the case of a hypothetical bank called Singleton Bank with $10 million in deposits, the T-account would list the cash in the bank's vaults and at the Federal Reserve as assets, while the customer deposits would be listed as liabilities. The bank's net worth is calculated as the total assets minus total liabilities and is also included on the liabilities side so that the accounts balance to zero. In a healthy business, net worth will be positive, whereas in a bankrupt firm, net worth will be negative.