a. Do the data indicate that Warwick Co. had net income of $140,000 during the month? Explain.
b. If the balance of the cash account is $200,000 at the end of the month, what was the cash balance at the beginning of the month?
Answer:
a. The increase of $140,000 ($515,000 – $375,000) in the cash account does not indicate net income of that amount. Net income is the net change in all assets and liabilities from operating (revenue and expense) transactions.
b. $60,000 ($200,000 – $140,000)
or
Cash X 375,000 515,000 200,000
X + $515,000 – $375,000 = $200,000 X = $200,000 – $515,000 + $375,000 X = $60,000