Accounting Methods

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Prepare a memo in  including the following information to better outline the situation:

 

  • Explain cash versus accrual accounting in general terms with support from the text for each of the three transactions above. Your answer should explain:
  • How is revenue different than cash inflow?
  • How is depreciation different than the purchase of equipment?
  • How are prepaid items recorded on the income statement?

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Accounting Methods

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Assignment Content
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
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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.
Submit your assignment.
Please make sure there is a reference page list if you use in the assignment

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