Question
Week 2_ Accounting Methods
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.
Resources
Generally Accepted Accounting Principles (GAAP), U.S. Securities
and Exchange Commission (SEC)
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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 500 words using business
writing (see week 1) 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.
USE the memo template provided in week 1 for formatting. ONLY
use APA for citations and references.
Submit your assignment.
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