Question

Why do banks use a T-account?

A. if a bank has become bankrupt, net worth will be shown as a zero on the balance sheet
B. the T-account separates the liabilities on the left from assets on the right
C. the T-account separates assets on the left from liabilities on the right
D. the T-account ensures the final entry made under the assets column is bank reserves

Answer 1

Banks use T-accounts to separate assets from liabilities on opposite sides, with net worth being included on the liabilities side to balance the account. Hence, the correct answer is option C.

Step-by-step explanation:

Banks use a T-account as an accounting tool to separate assets on the left from liabilities on the right. For a bank, assets typically include reserves, loans made, and securities like U.S. Treasury bonds. Liabilities consist of what the bank owes to others, such as customer deposits. Additionally, net worth, calculated as total assets minus total liabilities, is recorded on the liabilities side to ensure that the T-account balances. In practice, assets on a bank's T-account will always equal liabilities plus net worth.