Question

Which one of the following statements is correct concerning the cash balance of a firm?

1) The cash balance of a firm is always equal to its net income.
2) The cash balance of a firm is always equal to its total assets.
3) The cash balance of a firm is always equal to its total liabilities.
4) The cash balance of a firm can vary depending on its cash inflows and outflows.

Answer 1

The correct statement concerning the cash balance of a firm is that it can vary depending on its cash inflows and outflows.

Step-by-step explanation:

Out of the given statements, the correct one concerning the cash balance of a firm is 4) The cash balance of a firm can vary depending on its cash inflows and outflows.

The cash balance of a firm is not necessarily equal to its net income (statement 1), total assets (statement 2), or total liabilities (statement 3). Rather, the cash balance of a firm can change due to the cash coming into the firm (cash inflows) and the cash going out of the firm (cash outflows).