Bizcon a consulting firm has just completed its first year of operations. to encourage clients to hire its services Bizcon offered an 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 bieng paid cash on delivery. also it had to pay up front for two years of insurance. at the end of the year BizCon owed employees for one full month of salaries, but due to cash shortfall I 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 delayed wage payments.
prepare a 700 word memo including the following:
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 he company is very short of cash. Explain to management how BizCon could have positive net income and yet run out of cash.