The question “Andrea Apple opened Apple Photography” is related to basic accounting and the preparation of a cash account balance. It helps students understand how business transactions affect cash during an accounting period.
In this question, Andrea starts a photography business and completes several transactions during January. To find the ending cash balance, students need to identify all cash received and all cash payments made during the month.
Andrea Apple Opened Apple Photography: Question
Question: Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company’s books:
- Andrea invested $14,100 cash in the business.
- Andrea contributed $26,000 of photography equipment to the business.
- The company paid $2,700 cash for an insurance policy covering the next 24 months.
- The company received $6,300 cash for services provided during January.
- The company purchased $6,800 of office equipment on credit.
- The company provided $3,350 of services to customers on account.
- The company paid $2,100 in cash for monthly rent.
- The company paid $3,700 toward the office equipment purchased in transaction number 5.
- The company paid $335 in cash for January utilities.
Based on the information above, what would be the balance in the cash account at the end of January?
Options
| A. $11,565 | B. $14,265 |
| C. $17,265 | D. $21,465 |
Correct Answer
Option A: $11,565
The cash balance of Apple Photography at the end of January would be $11,565.
Explanation: How to Calculate the Cash Account Balance
To calculate the ending cash balance, we need to add all cash received by the business and subtract all cash payments made during January.
The opening cash balance is assumed to be zero because the business started on January 1.
Step 1: Identify Cash Inflows
Cash inflows are transactions that increase the amount of cash available to the business.
| Transaction | Cash Received |
|---|---|
| Andrea invested cash in the business | $14,100 |
| Cash received for photography services | $6,300 |
| Total Cash Inflows | $20,400 |
Therefore, the total cash received during January was $20,400.
Step 2: Identify Cash Outflows
Cash outflows are payments that reduce the cash balance.
| Transaction | Cash Paid |
|---|---|
| Insurance policy | $2,700 |
| Monthly rent | $2,100 |
| Payment toward office equipment | $3,700 |
| January utilities | $335 |
| Total Cash Outflows | $8,835 |
The company paid a total of $8,835 in cash during January.
Step 3: Calculate the Ending Cash Balance
The formula for calculating the ending cash balance is:
Ending Cash Balance = Total Cash Inflows − Total Cash Outflows
Substituting the values:
Ending Cash Balance = $20,400 − $8,835
Ending Cash Balance = $11,565
Therefore, the correct answer is Option A: $11,565.
Why Are the Other Transactions Not Included?
Some transactions affect other accounts but do not immediately change the cash balance.
- Photography equipment contributed by Andrea ($26,000): This increases the business’s equipment and owner’s equity accounts, but no cash is received.
- Office equipment purchased on credit ($6,800): The purchase increases equipment and accounts payable. Since it is a credit purchase, no cash is paid at that time.
- Services provided on account ($3,350): The business earns revenue and records accounts receivable, but it does not receive cash immediately.
These transactions must be recorded in the accounting books, but they do not affect the cash account balance for January.
Final Answer
The cash account balance of Apple Photography at the end of January is $11,565.
Correct option: A. $11,565
This question demonstrates an important accounting principle: only transactions involving actual cash receipts or payments affect the cash balance. Credit transactions and non-cash contributions affect other accounts instead.
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