Roy started a business on 1st April, 2010 by investing Rs. 50,000. Help him to find out the closing balance of cash for the month considering the following transactions: 02-4-2010... Roy started a business on 1st April, 2010 by investing Rs. 50,000. Help him to find out the closing balance of cash for the month considering the following transactions: 02-4-2010 Deposited into Bank Rs. 20,000 05-4-2010 Purchased goods for Rs. 18,000 08-4-2010 Advertisement expenses Rs. 1,000 12-4-2010 Sold goods for cash Rs. 12,000 13-4-2010 Stationary purchased Rs. 500 15-4-2010 Purchased furniture for Cash Rs. 8,000 20-4-2010 Sold goods to Kishore Rs. 4,000 26-4-2010 Borrowed from Mr. Kiran Rs. 10,000 29-4-2010 Received cash from Kishore Rs. 2,500 30-4-2010 Rent paid Rs. 1,000

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Understand the Problem

The question describes a series of financial transactions for Roy's business during April 2010. The task is to calculate the closing cash balance for the month, starting with an initial investment and considering all subsequent income and expenses.

Answer

Rs. 26,000
Answer for screen readers

Rs. 26,000

Steps to Solve

  1. Calculate the total cash inflows

Cash inflows are the amounts that increase the cash balance. These include the initial investment, cash sales, loan from Mr. Kiran and cash received from Kishore.

Initial Investment: Rs. 50,000 Cash Sales: Rs. 12,000 Loan from Mr. Kiran: Rs. 10,000 Cash from Kishore: Rs. 2,500

Total Cash Inflow $ = 50000 + 12000 + 10000 + 2500 = $ Rs. 74,500

  1. Calculate the total cash outflows

Cash outflows are the amounts that decrease the cash balance. These include deposit into bank, purchase of goods, advertisement expenses, stationary purchased, purchase of furniture and rent paid.

Deposit into Bank: Rs. 20,000 Purchase of Goods: Rs. 18,000 Advertisement Expenses: Rs. 1,000 Stationary Purchased: Rs. 500 Purchase of Furniture: Rs. 8,000 Rent Paid: Rs. 1,000

Total Cash Outflow $ = 20000 + 18000 + 1000 + 500 + 8000 + 1000 = $ Rs. 48,500

  1. Calculate the closing cash balance

Closing Cash Balance $ = $ Total Cash Inflow $ - $ Total Cash Outflow

Closing Cash Balance $ = 74500 - 48500 = $ Rs. 26,000

Rs. 26,000

More Information

The closing cash balance represents the amount of cash the business has at the end of April 2010, after accounting for all cash inflows and outflows. It's a crucial figure for assessing the business's liquidity and financial health.

Tips

A common mistake is to consider "Sold goods to Kishore" as a cash inflow. However, it's a credit sale (not for cash) and although it generates revenue, it does not provide immediate cash. Only when cash is received from Kishore is it a cash inflow. Another error could be to forget to include the initial investment as a cash inflow, leading to an underestimation of the closing balance.

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