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 occuring in a business setting and determine how to properly analyze those events to identify the impact on both cash and accrual accounting methods. 75% of students get a C or below on this assignment because they do not answer the three questions about each case scenario. Read the attachments to this assignment which provide an approach and example answers to help you.
Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Commission (SEC)
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Scenario: BizCon, a consulting firm, has just completed its first year of operations. The company’s sales growth was explosive. Additional decisions and events impacted BizCon:
1. To encourage clients to hire its services, BizCon offered 180-day financing – meaning its largest customers do not pay for nearly 6 months.
2. Because BizCon is a new company, its equipment suppliers insist on being paid cash on delivery.
3. Also, it had to pay up front for 2 years of insurance.
4. 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 decisons/events listed in the above scenario and describe the proper accrual accounting for each.
- 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.
The grading rubric for the paper is attached. Please note there are five requirements for this paper. Make sure you specifically answer the questions in the assignment. The assignment is about cash versus accrual accounting and why a company can have strong net income and yet still have cash flow problems.
There is an illustration and example with discussion for every one of the four scenarios in this assignment. You need to read these sections of the text to successfully meet the requirements of this assignment.
Format your assignment consistent with APA guidelines.
Click the Assignment Files tab to submit your assignment.