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. 
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  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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