Question

When preparing the statement of cash flows, Jaida calculated the following amounts: Net cash provided by operating activities: $14.8 million Net cash used by investing activities: $3.2 million Net cash provided by financing activities: $5.7 million Net increase in cash: $23.7 million. However, when comparing the net increase in cash she calculated to the actual difference in the beginning and ending balance of the Cash account, they did not agree. Why?

Answer 1

The actual net increase in cash is $17.3 million and not $23.7 million as computed by her. Hence the difference in the beginning and ending balance of the Cash account will not agree to her computation.

Step-by-step explanation:

The statement of cash flow by indirect method shows the business activities in 3 groups. These are operating activities, investing activities and financing activities. The cash flows from these activities added to the beginning cash balance gives the ending cash balance.

Given;

Net cash provided by operating activities: $14.8 million

Net cash used by investing activities: $3.2 million

Net cash provided by financing activities: $5.7 million

Net increase in cash: $23.7 million

Net increase in cash flow = Ending cash balance - Opening cash balance

Net increase in cash flow = $14.8 million - $3.2 million + $5.7 million

= $17.3 million

The actual net increase in cash is $17.3 million and not $23.7 million as computed by her.