On the Balance Sheet, how is the ending cash balance determined from the Cash Flow Statement?

On the Balance Sheet, how is the ending cash balance determined from the Cash Flow Statement?

• A. As the net income
• B. As the sum of beginning cash and net change in cash
• C. As the ending accounts payable
• D. As the gross cash receipts

Answer: (B)

Ending cash on the Balance Sheet is determined by starting with the cash balance at the beginning of the period and adjusting it for the net change in cash shown on the Cash Flow Statement. The Cash Flow Statement tracks all cash inflows and outflows for the period, and its net change in cash represents how much the cash balance increased or decreased. Therefore, ending cash equals beginning cash plus net change in cash. This is why the correct description is the sum of beginning cash and net change in cash. Net income, by contrast, is an accrual measure that affects equity and retained earnings rather than the actual cash balance. Ending accounts payable relates to liabilities, not the cash position. Gross cash receipts include cash received but don’t account for all cash outflows or the timing of cash flows, so they don’t determine the ending cash balance on the Balance Sheet.

Ending cash on the Balance Sheet is determined by starting with the cash balance at the beginning of the period and adjusting it for the net change in cash shown on the Cash Flow Statement. The Cash Flow Statement tracks all cash inflows and outflows for the period, and its net change in cash represents how much the cash balance increased or decreased. Therefore, ending cash equals beginning cash plus net change in cash.

This is why the correct description is the sum of beginning cash and net change in cash. Net income, by contrast, is an accrual measure that affects equity and retained earnings rather than the actual cash balance. Ending accounts payable relates to liabilities, not the cash position. Gross cash receipts include cash received but don’t account for all cash outflows or the timing of cash flows, so they don’t determine the ending cash balance on the Balance Sheet.