Re: Economics 101 Puzzle for Dummies ????

Posted by MarkB_MI on October 08, 2019 at 18:04:28 from (174.230.5.249):

In Reply to: Economics 101 Puzzle for Dummies ???? posted by Crazy Horse on October 08, 2019 at 12:12:57:

This is not economics so much as an exercise in accounting.

The accounting equation states that assets = liabilities + equity.

So if we take one of the business owners at random, and assume that individual's net worth is $100,000. Also, his assets include an accounts receivable of $100 and his only liability is an account payable of $100.

Assets = Liabilities + Equity
100,100 = 100 + 100,000

He receives the C-note, which moves $100 from accounts receivable to cash on hand. There is no change in the total assets, the asset just moves from one bucket to another:

Assets = Liabilities + Equity
100,100 = 100 + 100,000

Now he uses the $100 cash on hand to pay his $100 liability, which reduces both assets and liabilities by $100.

Assets = Liabilities + Equity
100,000 = 0 + 100,000

The important thing is that AT NO TIME did the business owner's equity change! His net worth before, during and after the series of transactions remained $100,000. The idea that his financial situation improved is simply not true.

Now you say, "well what about the hotel owner, who grabbed the C-note that wasn't his?" When he took the $100, that became both an asset (cash on hand) and a liability. And when he returned it $100 was deducted from both assets and liabilities. No change.

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