At the beginning of the month, the balance of the Cash account was $5,000. During the month, the company purchased two units of inventory at a cost of $1,000 each and paid in cash. It subsequently sold one unit for $2,400 and received cash from the customer. Assuming no other transactions, what is the balance of the Cash account at the end of the month?
Correct answer. Cash decreased by $2,000 (2 x $1,000) when inventory was purchased and increased by $2,400 when inventory was sold. The ending balance of Cash = $5,000 the beginning balance – $2,000 payment for inventory + $2,400 sales proceeds = $5,400.