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What do we mean when we say that investors and creditors are interested in a company's cash flow prospects?

Explain the effect of operating profitably n the balance sheet of a business entity.

Does the receipt of cash by a business indicate that revenue has been earned? Explain.

Does the payment of cash by a business indicate that an expense has been incurred? Explain.

3.2 Listed below in random order are the eight steps comprising of complete accounting cycle:

Prepare a trial balance
Journalize and post the closing entries
Prepare financial statements
Post transaction data to the ledger
Prepare an adjusted trial balance
Make end-of-period adjustments
Journalize transactions
Prepare an after-closing trial balance

A. List these steps in sequence in which they would normally be performed.

B. Describe ways in which the information produced through the accounting cycle is used by a company's management and employees.

Solution Preview

1.What do we mean when we say that investors and creditors are interested in a company's cash flow prospects?
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<br>Investors are concerned with whether the company has got sufficient funds to ensure smooth running of daily operations and eventually make profits and pay dividends to the investors.
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<br>Creditors want to know whether the company is able to make prompt repayments before deciding to make credit sales to the company.
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<br>2. Explain the effect of operating profitably n the balance sheet of a business entity.
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<br>Operating profitably increases the net profit of the company and this net profit in turn ...

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