During the month, Warwick Co. received $515,000 in cash and paid out $375,000 in cash.

During the month, Warwick Co. received $515,000 in cash and paid out $375,000 in cash.

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