Fred Smithers, a recent colleg

Fred Smithers, arecent college graduate decided to open his own portable juice bar,Smither’s Smoothies, to wheel around Newport beach. You, a trustedfriend of Fred, are a business major that has also recentlygraduated and agreed to handle the books for a while to get somepractical experience and have a favor that you can ask of Fred inthe future.

Given the followingfive transactions…

May2: Fred invests $12,000 of his own money to start the newcompany. This money was obtained from a part-time job working at alegal firm while he was in school.

May3: Fred spent $5,100 cash to purchase a refrigeratedtrailer that he can pull behind his car and set up at the beach.Under your advice, Fred agrees to place the new asset under anaccount called “Equipment.”

May6: Fred bought $640 of supplies on account from theFlav-O-Rite confectioners company. Because they will last longerthan a single accounting period Fred agrees to record them as,”Supplies” as per your suggestion.

May13: Fred sat on the beach for six hours without a singlesale and was feeling very down. Right before he left, however, aplumber escorting his family reunion along the beach stopped by hisstand and bought $800 worth of smoothies for the entire family.Under your advice, Fred agrees to call this cash revenue,”Sales.”

Question: Whatwould be the balance in the Cash account at the end of the periodfollowing the posting of all the transactions?




None of the other answers






Based on the information available inthe question, we cancalculate the balance in the cash account at the end of theaccounting period as follows:-

Date Amount Effect on Cashaccount Rationale
May 2        12,000 Increase This would result in an increase tothe cash account as it is capital contribution to thebusiness.
May 3        (5,100) Decrease This would result in a decrease to thecash account because an asset has been purchased by payingcash
May 6               –   No effect The purchase of supplies on creditwould not affect the cash account as it is a credit transaction andno cash is involved
May 13             800 Increase Sales Revenue increases the amount ofcash available.
Cashbalance          7,700

Based on the calculation above, the correct answer isOption D – $7,700.

Option A and Option C are incorrect based on the abovecalculations.

Optoin B is incorrect as we have an answer at Option D.

All the best and please let me know if you have any questionsvia comments 🙂  

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