Given below are two statements:
Assertion (A): If the assets of a bank are greater than its liabilities, the difference is recorded on the right hand side of its balance sheet as net worth.
Reason (R): The accounting rule states that both sides of the account must balance.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): If the assets of a bank are greater than its liabilities, the difference is recorded on the right hand side of its balance sheet as net worth. — True. Net worth = assets − liabilities, shown on the right hand side.
Reason (R): The accounting rule states that both sides of the account must balance. — True. Total assets must equal total liabilities in a balance sheet.
Why R explains A?
If assets are larger, the two sides would not be equal. Adding net worth on the liabilities side fills the gap, so the sides balance. The rule in R is the reason for the entry in A.
NCERT (2026-27): “3.3 Money Creation by Banking System … Liabilities for any firm are its debts or what it owes to others. For a bank, the main liability is the deposits which people keep with it. Liabilities = Deposits The accounting rule states that both sides of the account must balance. Hence if assets are greater than liabilities, they are recorded on the right hand side as Net Worth. Net Worth = Assets - Liabilities” |