Final answer:
Net worth is the sum of all assets minus all liabilities. In the banking context, a positive net worth indicates financial health, whereas a negative net worth could mean the bank cannot return depositors' money. A T-account is used to balance a bank's total assets with its liabilities and net worth.
Step-by-step explanation:
To complete the sentence defining net worth, the correct terms are: Your net worth is the sum of all of your assets minus all of your liabilities. In the context of a bank, this concept is crucial for determining the financial health of the institution.
For example, the Safe and Secure Bank has a net worth of $1 million, calculated by subtracting its $10 million in liabilities from its $11 million in assets. It is fundamental for a bank to maintain a positive net worth to ensure that it can meet its obligations to depositors. A bank's assets typically include reserves, loans made to customers, and investments, such as U.S. Government Securities. In contrast, liabilities consist primarily of the deposits made by customers into their bank accounts, which the bank is obligated to repay upon demand.
When evaluating a bank using a T-account, it is a tool that separates assets on the left from liabilities (plus net worth) on the right. The total of the assets must equal the total of the liabilities and net worth for the T-account to balance. A positive net worth indicates a financially secure bank, whereas a negative net worth could signal potential solvency issues and the risk of not being able to return depositors' money.