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.
· Attached Grading Guide
· Generally Accepted Accounting Principles (GAAP),
· U.S. Securities and Exchange Commission (SEC)
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.
1. -Prepare the memo in a maximum 700 words including the following information to better outline the situation:
2. -Explain how cash and accrual accounting differs for each of the events listed in the above scenario and describe the proper accrual accounting.
3. -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.
4. -Explain to management how BizCon could have positive net income and yet run out of cash.
5. -Meet all content expectations in the attached Grading Guide Week 2 Document.