BizCon Memo. Delayed Wage Payment, Finance Coursework (Coursework Sample)
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 occurring in a business setting and determine how to properly analyze those events to identify the impact on both cash and accrual accounting methods.
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 550-600 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.
TO: FINANCE OFFICER
FROM: THE MANAGEMENT
SUBJECT: DELAYED WAGE PAYMENT
As you were notified earlier, there will be a delayed payment in the company because if insufficient cash flows. I wish to apologize for the inconvenience, and the company will appreciate your patience until the matter is resolved. I am also aware that BizCon has maintained a favorable net income, and some people have been questioning why the company has not been able to pay wages. I want to assure all the employees that Bizcon has an excellent performance in sales this year and there is no need for the worry. However, I would like to give a clear explanation of why the delay happened and how we can prevent such an occurrence in the future.
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