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    Cash sources, retained earnings and cash shortages

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    a. If you could pick a single source of cash for your business, what would it be? Why?

    b. How can a business earn large profits but have a small balance in Retained Earnings?

    c. How can a business lose money for many years and still have plenty cash?

    d. Give two reasons why a business can be profitable for many years and still have a cash shortage?

    e. Suppose your business has $80,000 worth of liabilities that must be paid within the next three months. Your liquid (can be turned into cash quickly) assets total only $60,000, your sales and collections from customers are slow. Identify two ways to finance the remaining $20,000 you will need, so you can pay all of the liabilities when they are due.

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    Dear Student,

    Thank you for using BM.
    Below are my answers.

    Anna Liza Gaspar

    Question A
    It would be sales. Selling is a regular activity of the company and sourcing cash directly from sales rather than from accounts receivable is sustainable.

    Question B
    Businesses can earn large profits, but still record small balances in their retained ...

    Solution Summary

    This solution provides answers to various accounting questions.