What is the cash balance change at the end of Year 1 after these debt and interest activities?

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Enhance your accounting skills for the PSIA Accounting Exam. Use flashcards and multiple-choice questions to prepare effectively with hints and explanations. Get set for your exam success!

Multiple Choice

What is the cash balance change at the end of Year 1 after these debt and interest activities?

Explanation:
Cash balance changes because of debt and interest come from two kinds of cash movements: cash inflows from issuing new debt and cash outflows from repaying debt principal plus interest payments. To find the year-end change, add any cash received from new debt and subtract any cash paid for debt principal and interest. If the result is negative, the cash balance drops; if positive, it rises. In Year 1, the combined effect of these debt and interest activities is a net outflow of 7, so the cash balance decreases by 7. This happens when outflows exceed inflows by that amount.

Cash balance changes because of debt and interest come from two kinds of cash movements: cash inflows from issuing new debt and cash outflows from repaying debt principal plus interest payments. To find the year-end change, add any cash received from new debt and subtract any cash paid for debt principal and interest. If the result is negative, the cash balance drops; if positive, it rises. In Year 1, the combined effect of these debt and interest activities is a net outflow of 7, so the cash balance decreases by 7. This happens when outflows exceed inflows by that amount.

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