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A bank's net worth is equal to its:

A. Assets plus its liabilities
B. Assets minus its liabilities
C. Liabilities minus its assets
D. Profits plus its assets

User GeralexGR
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1 Answer

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Final answer:

A bank's net worth is the difference between its total assets and total liabilities, reflected as the bank's capital on the balance sheet. The answer to the question is option B: Assets minus liabilities.

Step-by-step explanation:

The net worth of a bank is calculated as its total assets minus its total liabilities. This is represented on a bank's balance sheet and is part of basic financial accounting principles. The net worth reflects the bank's capital, which is the value of the bank that belongs to its owners after all debts and other liabilities have been paid. A bank's assets typically include cash on hand, loans given to customers, and investments like U.S. Government Securities. Liabilities are essentially what the bank owes, which primarily includes deposits made by customers.

When we apply this to a T-account, which separates assets and liabilities, net worth is always included on the liabilities side of the equation to make the account balance. A positive net worth indicates a financially healthy bank, whereas a negative net worth suggests financial distress. Therefore, the correct answer to the student's question is option B: A bank's net worth is equal to its assets minus its liabilities.

User Moaaz Bhnas
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