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An asset use transaction does not affect the total amount of claims to a company's assets. True or False?

User IgorZ
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Final answer:

The statement that an asset use transaction does not affect the total amount of claims to a company's assets is true. This can be understood by examining a T-account where assets equal liabilities plus net worth.

Step-by-step explanation:

An asset use transaction does not affect the total amount of claims to a company's assets; this statement is True. In accounting, the T-account is used to represent a firm's assets on the left and its liabilities plus net worth on the right. In the context of a bank, assets might include reserves, loans made, or U.S. Government Securities. Liabilities include deposits and other obligations.

A bank's net worth is calculated as total assets minus total liabilities. Net worth is listed on the liabilities side, ensuring that the equation assets = liabilities + net worth holds true. Therefore, any transaction that uses the company's assets, such as paying out a loan, will be offset by a decrease in cash (an asset) but an increase in loans (also an asset) or by a decrease in liabilities if the loan is paid off, keeping the total claims on company assets unchanged.

As a result, the claims to those assets also decrease. For example, if a company sells a piece of equipment, the asset value of the equipment decreases, and the claim to that asset (in the form of accounts receivable or other liabilities) also decreases.

User Sjobe
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