How does the firm’s Cash account change in the reporting period?

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BlackTom AI · Accepted Answer

Here is how to analyze each option for the question about how the firm’s Cash account changes in the reporting period.
Option A: 'A. Cash increases by $5' — If the reported change in Cash is an increase of $5, this aligns with a net inflow of cash during the period (more cash receipts than cash disbursements by $5). This would be the direct interpretation if the data or statement in the problem specifies that Cash grew by $5, or if the cash flow narrative indicates a positive net cash flow of $5. The reasoning here is that the Cash account increases exactly by the amount of the net inflow.
Option B: 'B. Cash decreases by $5' — This would imply a net outflow of cash of $5 during the period. That would be inconsistent with the claim in Option A that Cash increased by $5, unless there is a misprint or the scenario includes both inflows and outflows that net to a negative $5. Without additional context showing negative net cash flow, this option contradicts a stated increase.
Option C: 'Not enough information' — This choice claims that we cannot determine the Cash change from the information given. If the problem had explicit data indicating Cash rose by $5, then 'Not enough information' would be incorrect because the net change is specified. However, in cases where the problem context truly lacks numbers or a clear statement of net cash flow, this option would be valid. The critical factor is whether the problem provides a net change value for Cash.
In this particular scenario, the provided answer indicates that the Cash account increases by $5. Therefore, the correct interpretation is that there was a net cash inflow of $5 during the period. The other options describe opposite or indeterminate situations that would only be accurate if the data were different or incomplete, which is not the case if the problem states a $5 increase.

ACCT10001_2025_SM1 Exam: Accounting Reports and Analysis (ACCT10001_2025_SM1)- Requires Respondus LockDown Browser

How does the firm’s Cash account change in the reporting period?

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