Negative cash flow in a farm business means which of the following is true?

Negative cash flow in a farm business means which of the following is true?

• A. Net farm income negative, net worth decreased, and cash outflows exceeded cash inflows
• B. Net farm income positive, net worth decreased, and cash inflows exceeded cash outflows
• C. Net farm income negative, net worth increased, and cash inflows exceeded inflows
• D. Net farm income positive, net worth increased, and cash inflows exceed cash inflows

Answer: (A)

Negative cash flow means cash outflows exceed cash inflows, reducing available liquidity. If net farm income is negative, expenses exceed revenues, which also lowers equity because losses reduce retained earnings. When both cash flow is negative and net income is negative, net worth tends to decrease as assets are drawn down or losses reduce owner’s equity. So this description—cash outflows greater than inflows, negative profitability, and a drop in net worth—best matches a farm business facing a cash shortfall and losses. The other patterns would imply liquidity or profitability improving, which isn’t consistent with negative cash flow.

Negative cash flow means cash outflows exceed cash inflows, reducing available liquidity. If net farm income is negative, expenses exceed revenues, which also lowers equity because losses reduce retained earnings. When both cash flow is negative and net income is negative, net worth tends to decrease as assets are drawn down or losses reduce owner’s equity. So this description—cash outflows greater than inflows, negative profitability, and a drop in net worth—best matches a farm business facing a cash shortfall and losses. The other patterns would imply liquidity or profitability improving, which isn’t consistent with negative cash flow.