In the context of financial statements, what are typically the largest asset and the largest liability on a commercial bank's balance sheet?

• A. Investments (asset) and Shareholders' Equity (liability)
• B. Cash (asset) and Bonds Payable (liability)
• C. Buildings (asset) and Accounts Payable (liability)
• D. Loans (asset) and Deposits (liability)

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the structure of a commercial bank's balance sheet. A balance sheet is divided into assets, liabilities, and shareholders' equity. Assets represent what the bank owns, liabilities represent what the bank owes, and shareholders' equity represents the residual interest in the assets after deducting liabilities.
2. Step 2: Recognize that for a commercial bank, loans are typically the largest asset. Banks primarily generate income by lending money to individuals and businesses, and these loans are recorded as assets because they represent amounts owed to the bank.
3. Step 3: Identify that deposits are typically the largest liability for a commercial bank. Deposits are funds that customers place in the bank, and the bank owes these funds back to the customers upon request, making them a liability.
4. Step 4: Compare the other options provided in the problem. Investments, cash, and buildings are assets, but they are generally smaller in magnitude compared to loans for a commercial bank. Similarly, shareholders' equity, bonds payable, and accounts payable are liabilities, but deposits are usually the largest liability.
5. Step 5: Conclude that the correct answer is loans (asset) and deposits (liability), as these are the most significant items on a commercial bank's balance sheet due to the nature of its operations.