Your managers showed you the income statement for your company. The income statement shows a net income of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations.How is this possible? Please address the following issues in your discussion this week:How can a company make a profit and still be short of cash?In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow?How does the purchase of fixed assets or additional inventory adversely affect cash flow?

While a company may show a net income on its income statement, it is possible for the company to be…

Answered: Your managers showed you the income…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Your managers showed you the income statement for your company. The income statement shows a net income of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations.

How is this possible? Please address the following issues in your discussion this week:

How can a company make a profit and still be short of cash?
In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow?
How does the purchase of fixed assets or additional inventory adversely affect cash flow?

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