A construction company's cash flow statement shows operating activities generated $150,000, investing activities used $80,000, and financing activities used $25,000. What was the net change in cash?
Correct Answer
B) $45,000 increase
Net change in cash = Operating activities + Investing activities + Financing activities. $150,000 + (-$80,000) + (-$25,000) = $45,000 increase in cash.
Why This Is the Correct Answer
The net change in cash is calculated by algebraically adding all three cash flow components together. Operating activities generated a positive $150,000, while investing activities used $80,000 (negative) and financing activities used $25,000 (negative). When you add $150,000 + (-$80,000) + (-$25,000), you get a net positive change of $45,000, indicating an increase in cash.
Why the Other Options Are Wrong
Option A: $45,000 decrease
This incorrectly adds all amounts as positive values ($150,000 + $80,000 + $25,000 = $255,000), ignoring the fact that investing and financing activities 'used' cash, meaning they should be treated as negative values in the calculation.
Option D: $255,000 increase
This amount ($75,000) appears to result from incorrectly calculating the difference between operating activities and only one of the other categories, rather than including all three components in the net change calculation.
Memory Technique
Use 'OIF' (Operating, Investing, Financing) and remember: Generated = Good (positive), Used = Ugly (negative). Then simply add them algebraically.
Reference Hint
Look up 'Cash Flow Statement' or 'Statement of Cash Flows' in accounting or construction business management chapters, typically found in project management or business practices sections.
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