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ACCA Applied Knowledge · Financial Accounting · Statement of cash flows (excluding partnerships)

At 1 January, Orchid Co had cash of $12,000 and a bank overdraft of $20,000. At 31 December it had cash of $31,000 and a bank overdraft of $8,000. Overdrafts are repayable on demand and form an integral part of cash management. What was the net increase in cash and cash equivalents for the year?

The net increase is $31,000. Where overdrafts repayable on demand form part of cash management, they are netted against cash. Opening position was 12,000 less 20,000, a net overdraft of 8,000; closing was 31,000 less 8,000, net 23,000. The movement is 31,000.

  1. A$31,000Correct
  2. B$19,000
  3. C$11,000
  4. D$23,000

Explanation

Opening cash and cash equivalents = 12,000 - 20,000 = -8,000. Closing = 31,000 - 8,000 = 23,000. Increase = 23,000 - (-8,000) = 31,000. Ignoring the overdrafts and using cash only gives 19,000.

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