Accounting Methods

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Purpose of Assignment

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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.

Assignment Steps

Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Commission (SEC)

Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.

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
  • 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.

Click the Assignment Files tab to submit your assignment.

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