Scenario: BizCon, a consulting firm, has just completed its first year
of operations. The company’s sales growth was explosive. To encourage
clients to hire its services, BizCon offered 180-day financing – meaning
its largest customers do not pay for nearly 6 months. Because BizCon is
a new company, its equipment suppliers insist on being paid cash on
delivery. Also, it had to pay up front for 2 years of insurance. At the
end of the year, BizCon owed employees for one full month of salaries,
but due to a cash shortfall, it promised to pay them the first week of
next year.
As the senior accountant, the Chief Financial Officer has asked you to
prepare a memo to be sent to management notifying them of the delayed
wage payments.
Prepare the memo in a maximum 700 words including the following information to better outline the situation:
Explain how cash and accrual accounting differs for each of the events
listed in the above scenario and describe the proper accrual accounting.
Assess how at the end of the year, BizCon reported a favorable net
income, yet the company’s management is concerned because the company is
very short of cash. Explain to management how BizCon could have
positive net income and yet run out of cash.
Format your assignment consistent with APA guidelines.
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