Delay wages

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 upfront 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 of 500 words using business writing (see week 1) including the following
information to better outline the situation:
• Explain how cash and accrual accounting differ and explain which method Bizcon is using. Be sure to read my posts in class.
• Explain to management how BizCon could have positive net income and yet run out of cash. This entails tying together the accounting method and the timing of payments and receipts.

Sample Solution