Multiple Choice
A loss is recognized in accounting when:
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1. Introduction to Accounting
Fundamental Accounting Equation
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Which of the following formulas correctly determines the ending cash balance on a statement of cash flows?
A
Beginning Cash Balance + Cash Inflows - Cash Outflows
B
Revenues - Expenses
C
Total Assets - Total Liabilities
D
Assets = Liabilities + Equity
Verified step by step guidance1
Understand the purpose of the statement of cash flows: It is used to determine the cash position of a company by analyzing cash inflows and outflows during a specific period.
Identify the components of the formula: The ending cash balance is calculated by starting with the beginning cash balance, adding all cash inflows, and subtracting all cash outflows.
Recognize that revenues and expenses are part of the income statement and do not directly determine the ending cash balance. Similarly, total assets minus total liabilities is related to net worth, not cash flow.
Recall the accounting equation (Assets = Liabilities + Equity), which is used for the balance sheet, not for calculating cash flow.
Conclude that the correct formula for determining the ending cash balance is: Beginning Cash Balance + Cash Inflows - Cash Outflows.
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