Spending cash to acquire an asset affects net worth how?

• A. Increases net worth
• B. Decreases net worth
• C. Not affected
• D. Net worth fluctuates

Answer: (C)

Net worth is the difference between what you own (assets) and what you owe (liabilities). When you spend cash to buy an asset, you’re simply swapping one asset for another: cash decreases and the new asset increases by the same amount. Because total assets don’t change and liabilities stay the same, net worth stays the same right after the purchase. Over time, depreciation or other changes to equity could affect net worth, but the immediate effect of paying cash for an asset is no change in net worth.