Description
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 minimum 500 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.
Explanation & Answer
Attached.
Running head: REASON TO THE DELAYED WAGE PAYMENTS
Reason for the Delayed Wage Payments
Institution Affiliation
Date
1
REASON TO THE DELAYED WAGE
PAYMENTS
2
To: Management
From: , Senior Accountant
Date: 02/25/2019
Re: DELAYED WAGE PAYMENTS
I’m writing a memorandum to address the issue of the delayed payment of employee’s
monthly salary and to clarify the difference between cash and accrual accounting method that the
company has adopted. Cash and accrual accounting are two methods applied by various
businesses to account for their cash flow. The methods differ from one another: in the accrual
accounting, the business revenues and expenses are recorded regardless of when the mo...
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