Question
Assignment Content
1.
Top of Form
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
· Accounting Methods Grading Guide
· 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.
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.
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