Balance Sheet Equation
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is the fundamental balance sheet equation?
Assets = Liabilities + Capital (Owner's Equity). This equation must always remain in balance after every financial transaction.
What is the accounting equation that forms the basis of double-entry bookkeeping?
Assets equal Liabilities plus Owner's Equity always.
What does the term 'Capital' represent in the balance sheet equation?
Capital represents the owner's equity or net worth, which is the residual interest in the assets of an entity after deducting all its liabilities.
How does the balance sheet equation change when a bank purchases fixed assets with cash?
Assets shift form; cash decreases, fixed assets increase equally.
How does the balance sheet equation reflect a bank's financial position?
For a bank, the equation is: Assets (loans, investments, cash) = Liabilities (deposits, borrowings) + Capital (paid-up capital, reserves, surplus).
What does the left-hand side of the balance sheet equation represent?
All resources owned or controlled by the bank (Assets).
What happens to the balance sheet equation when a bank receives a customer deposit?
Both Assets (cash/bank balance increases) and Liabilities (deposits increase) rise by the same amount, keeping the equation in balance.
What does the right-hand side of the balance sheet equation represent?
Claims against assets—liabilities and owners' capital.
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