Final answer:
Financial ratios like the Debt-to-Equity ratio and Total Liabilities to Total Assets ratio reflect the business's financial leverage and demonstrate the proportion of funds provided by debt versus equity. The 'T' in a T-account demarcates assets from liabilities and net worth, which must always balance in accordance with accounting principles.
Step-by-step explanation:
Financial ratios such as the Debt-to-Equity ratio and the Total Liabilities to Total Assets ratio show the relative amount of funds in the business supplied by creditors and shareholders. These ratios provide insight into the financial structure of a firm and indicate how much of the firm is financed through debt versus equity.
The T-account is a fundamental concept in accounting that separates a firm's assets on the left side from its liabilities and net worth on the right side. A bank's balance sheet, which lists its assets and liabilities, operates similarly. Assets, like reserves, bonds, and loans, are the valuable items the bank owns or is owed. Liabilities, such as deposits, are what the bank owes to others. The net worth of a bank is calculated by subtracting its total liabilities from its total assets.
For a healthy business, net worth will be positive, whereas a negative net worth would indicate a bankrupt firm. Regardless of the firm's financial health, the fundamental accounting equation must be maintained, whereby a bank's assets always equal liabilities plus net worth.