How can different accounting methods impact an organization's net income?
Cash flow is the most important for an organization to manage. Cash flow it is the lifeblood of a business. Cash is absolutely critical in the growth and well being of a business.
Cash flow serves several purposes.
- First, it is used for meeting normal cash obligations such as paying bills.
- Second, it is held as a precautionary measure for unanticipated problems.
- Third, it is held for potential investment purposes.
The term "cash" refers to those assets that are liquid and have immediate cash redemption value such as cash and checks.
Operating cycle is defined as the system through which cash flows:
- from the purchase of inventory
- through the collection of accounts receivable.
It measures the flow of assets into cash and is, in effect, a business stopwatch.
For example, the operating cycle may begin with cash and inventory on hand. A company purchases additional ...
This solution addresses whether cash flow, receivables or inventory are more important for an organization to manage and why, as well as how different accounting methods affect the net income of an organization.