Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange
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
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.