A business entity generates a cash flow from operations of 500 in X1,600 in X2 and 700 in X3.The cash outflow from investing is 250 in X1,350 in X2 and 450 in X3.Cash outflow from financing is 150 in X1,-300 in X2 and 900 in X3.Which of the four alternatives below is coherent with these facts and these facts alone.

Question

Quizplus · Accepted Answer

Looking at the cash flow from operations and cash flow from investing, it can be inferred that the business entity was able to generate more cash from operations than it invested in its operations over the three years (net inflow of cash = 500+600+700-250-350-450 = 400).

However, looking at the cash flow from financing, it can be seen that the entity borrowed more than it reimbursed over the three years (net outflow of cash = -150-300-900 = -1350).

Therefore, the only coherent alternative is D, which states that the opening cash balance in X1 is equal to the closing cash balance in X3. This is because the net cash inflow from operations and investing ($400) would have been offset by the net cash outflow from financing (-$1350), resulting in a decrease in the overall cash balance over the three years. The only way for the opening cash balance to be equal to the closing cash balance would be if the net result of all three cash flow categories was zero.

A Business Entity Generates a Cash Flow from Operations of 500