Question Description
Purpose of Assignment
This week’s activity illustrates the role acompany’s accounting method plays in financial statement reporting. Inthis assignment, students evaluate the events occurring in a businesssetting and determine how to properly analyze those events to identifythe impact on both cash and accrual accounting methods.
Assignment Steps
Scenario: BizCon, a consulting firm, has justcompleted its first year of operations. The company’s sales growth wasexplosive. To encourage clients to hire its services, BizCon offered180-day financing – meaning its largest customers do not pay for nearly 6months. Because BizCon is a new company, its equipment suppliers insiston being paid cash on delivery. Also, it had to pay up front for 2years of insurance. At the end of the year, BizCon owed employees forone full month of salaries, but due to a cash shortfall, it promised topay them the first week of next year.
As the senior accountant, the Chief Financial Officer has asked youto prepare a memo to be sent to management notifying them of the delayedwage 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 theevents listed in the above scenario and describe the proper accrualaccounting.
- Assess how at the end of the year, BizCon reported a favorable netincome, yet the company’s management is concerned because the company isvery short of cash. Explain to management how BizCon could havepositive net income and yet run out of cash.
Format your assignment consistent with APA guidelines.
Purpose of Assignment This week’s activity illustrates the role a company’s accounting method plays in financial statement reporting. In this assignment, students evaluate the events occurring in a business setting and determine how to properly analyze those events to identify the impact on both cash and accrual accounting methods. Assignment Steps 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.
