Overall Revive Marketing is doing well based on the performance on its income statement, and a positive profit has been recognised. However, its cash position does not show any sign of improvement. This report discusses the reasons of this issue in two aspects, the nature of the profit figure in income statement and the accounting method has been applied in recording.
Findings can be summarized as:
- Relationship between profit and cash positions
- Pros and Cons in using accrued accounting method
Recommendations mainly focus on the delay of software update, avoid ethical problems and regularly record and review the accounting documents in order to better monitoring the ...view middle of the document...
Profit or Loss stated in income statement is relevant to expenses incurred, prepaid expenses, unearned revenue, accrued revenue and also the depreciation expenses occurred in the financial period. Thus the result combined the current operating cash inflow and outflow with the future expectation of cash movement. For example, revenue been recognised but haven’t received yet is recorded in income statement, and generates an effect on the result of profit or loss. However, it’s only being recorded based on the expectation that cash will be received in the future period. In the current financial period, it does not have any effect on cash position. By including it in income statement may drive up the profit figure due the expectation that money can be received in near future.
2.2 Accrual accounting
Accrual accounting is an accounting method used to prepare accounting documents, and the general idea of this method is to record revenues and expenses when they occurred rather than when cash exchange has been made. This method could provide a more accurate view on the company’s current financial performance, because it combines current cash inflows and outflows with expected future cash movements. On the other hand, it could also bias the true picture of the company’s performance as accounts are recorded regardless of the date of actual cash exchange.
In conclusion, based on the financial conditions of Revive Marketing, overall performance is good, expense is well-controlled and sufficient revenue has been made during financial period. However, the problem is cash level is not well...