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Unit 1 cfo matthew mattison

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ABC123 Company
9876 Road St
Elmira, NY.
12/7/2020
Mr. Karl Richland
Semtell Company
Cincinnati, OH
Dear Mr. Richland
The paper seeks to provide some advice on the issues that led to the reduction in the cash despite
the increasing sales. Even though the company reported increased sales, it did not have enough
cash to meet the payroll or even to pay vendors within 30 days. The main reason that the cash
can go down even when sales are up is the effects of receivables. This includes the sales, which
are made by the company and to be paid later within a year. An increase for receivables in the
company would lead to a reduction for cash in the company despite an increase for sales. The
company should try to reduce the number of receivables payments in order to increase the
overall amount of cash.
The use of the GAAP accounting principles of accrual approach could be another reason for the
reduced cash in the company. The accrual method of accounting allows for the recording of
earnings when cash is not actually received. Thus, the sales could be high, but the cash would be
lower in the company. In contrast, the cash method of accounting recognizes more revenues and
receives more cash. Based on the GAAP accounting, it encourages the need to keep
score on operational performance. This occurs from the nature of timing of actual cash inflows
and outflows in the company.
The company is a young stage of growth, which would not attract many customers. Thus, the
company will be forced to makes at a credit in order to attract more sales. This will lead to a
reduction of amount of cash in the company despite the increased sales made in the company.
Most importantly, the implications of the accrual basis of accounting have significant impact on
the availability of cash in the company. Apart from the recognition of revenues, the expenses
incurred in creating products and services are recognized in the same period as revenues. The
expenses are not directly associated to product, which are recognized and reported as they are
incurred.
The changes in the working capital including the current liabilities and current assets would also
affect the amount of cash flows in the company. Even though the company had made significant
sales, this does not imply you collected all the cash associated them. This also includes the
incurred expenses that would not be actually paid using cash. For instance, most of the incurred
expenses could remain unpaid. It is indicated in the balance sheet as an account payable. The

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ABC123 Company 9876 Road St Elmira, NY. 12/7/2020 Mr. Karl Richland Semtell Company Cincinnati, OH Dear Mr. Richland The paper seeks to provide some advice on the issues that led to the reduction in the cash despite the increasing sales. Even though the company reported increased sales, it did not have enough cash to meet the payroll or even to pay vendors within 30 days. The main reason that the cash can go down even when sales are up is the effects of receivables. This includes the sales, which are made by the company and to be paid later within a year. An increase for receivables in the com ...
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Just what I was looking for! Super helpful.

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