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Your uncle repays a $\$$100 loan from Tenth National Bank (TNB) by writing a $\$$100 check from his TNB checking account. Use T-accounts to show the effect of this transaction on your uncle and on TNB. Has your uncle's wealth changed? Explain.
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using T. Accounts, we're going to show the change in your uncles and his banks T. Accounts if he repays a $100 loan to his bank, which he used funds from his checking account at that bank to do. So let's fill out these T accounts for before he paid off the loan and for after when he paid off the loan. So starting with before we know is that our uncle, he would have had in his checking account That $100. But he also would have had $100 in liabilities. And that's that loan that he has yet to repay, Meaning the bank would have had in assets that same $100 in loans that they lent out to your uncle and in liabilities. They also have that $100 in deposits that your uncle has at their bank. So now we want to look at afterwards. So after your uncle repays that $100 loan, what we're going to see is that his assets are going to drop because he used his checking account to do that. So we're going to lose the $100 that That he had in his checking account, meaning he's gonna be left with $0 in assets in his checking account. His liabilities are also going to drop by the same amount because he just paid back that $100 loan bringing him down to $0 for liabilities. The bank on the other hand, we're going to see a very similar result. We see that that loan was repaid, so they no longer have that asset, So they're going to drop down to $0 in their assets. And their liability is that $100 in checkable deposits that they were that your uncle had in their bank also drops because remember he paid back that loan using that $100. So their assets and liabilities dropped to zero. If we wanted to know if there were any change that occurred to your uncle's wealth, we can actually say that there was no change here because you can see beforehand there was an equal amount of assets and liabilities, meaning they balanced each other out. And afterwards we still have an equal amount of assets and liabilities so they're going to balance each other out again. There really was no change two as well.
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