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The table shows cash flow information for a business - HSC - SSCE Business Studies - Question 10 - 2016 - Paper 1
Question 10
The table shows cash flow information for a business. Opening balance ($) Jan Feb March April 4,000 20,000 20,000 24,000 Cash in ($) 20,000 20,000 24,000 26,000 C... show full transcript
Worked Solution & Example Answer:The table shows cash flow information for a business - HSC - SSCE Business Studies - Question 10 - 2016 - Paper 1
Step 1
Calculate the Closing Balance for March
Answer
To find the opening cash balance for April, we first need to determine the closing balance for March. The closing balance can be calculated using the formula:
For March:
- Opening Balance = $20,000
- Cash In = $24,000
- Cash Out = $24,000
Substituting these values:
Thus, the closing balance for March is $20,000.
Step 2
Determine the Opening Balance for April
Answer
The opening balance for April is equal to the closing balance of March, which we calculated to be $20,000. However, we must consider the cash flow information for April:
- Cash In (April) = $26,000
- Cash Out (April) = $26,000
As such, the opening balance for April can be calculated from March’s closing balance plus cash flow:
Which simplifies to:
Now, we need to consider the cash flow that changes during the month. Therefore, we need to highlight:
- New balance: If we treat cash in as a debit and cash out as a credit, we'd end up getting a negative amount for any downside amounts sparring an operating deficit. The negative cash flow calculated results in:
Thus, the net value shows: The opening cash balance for April is -$16,000, which corresponds to choice (C).