The following information is for Auxiliary, Inc. for the month of May:

The following information is for Auxiliary, Inc. for the month of May: cash sales of $200,000; accounts receivable payments of $200,000; accounts payable payments of $200,000; wages and salaries of $100,000; and, interest payments of $50,000.

There are no other cash inflows or outflows for the month of May and its beginning monthly cash balance is $50,000. What is Auxiliary’s ending cash balance for May?
A) -$50,000
B) $50,000
C) $100,000
D) $150,000

ANSWER

Answer: C
Explanation: C) The total incoming cash flow for May = cash sales for May + accounts receivable payments for May = $200,000 + $200,000 = $400,000. The total outgoing cash flow for May = accounts payable payments for May + wages and salaries for May + interest payment for May = $200,000 + $100,000 + $50,000 = $350,000. Thus, its net cash flow for May is total incoming cash flow for May – total outgoing cash flow for May = $400,000 – $350,000 = $50,000. Ending cash balance for May = beginning cash for May + net cash flow for May = $50,000 + $50,000 = $100,000.