Final answer:
A balance sheet details a business's assets, liabilities, and owner's equity on a specific date, reflecting the company's financial status. It shows the difference between what is owned and owed, equating to the net worth or bank capital. Specifically, for banks, this includes various financial instruments held as assets against what they owe to others, such as customer deposits.
Step-by-step explanation:
The statement that shows the value of a business's assets, liabilities, and owner's equity (O.E.) on a particular date is a balance sheet. The balance sheet is a financial statement that reflects the financial position of a company at a specific point in time, detailing what the business owns (assets), what it owes (liabilities), and the net worth, which is also referred to as owner's equity or bank capital. Assets are items of value like cash and property, while liabilities are obligations such as loans and mortgages. The difference between assets and liabilities is the net worth or owner's equity.
For banks, this includes reserves held, loans made, and securities owned as assets, and deposits received as liabilities. The T-account is a visual aid that separates a firm's assets on the left from its liabilities on the right, making it easy to see that assets must always equal liabilities plus net worth. This key accounting principle ensures a balanced financial perspective, useful for shareholders, investors, and regulatory agencies.
For instance, if a bank has assets such as cash in its vaults and Federal Reserve bank monies plus loans and securities, and liabilities including customer deposits, its net worth (or bank capital) is calculated by subtracting the total liabilities from the total assets. A positive net worth indicates a financially healthy institution, whereas a negative one can signal bankruptcy risks.