Accounting

The bar chart prepared in part (c) immediately outlines that the problems of the organisation mainly rest upon its cash flow.  Indeed, a net income of 14,185 is envisaged, which will lead to an enhancement to the financial wealth of the firm.  However, the opening cash balance of 5,000 will diminish to -10,706 during the period under consideration.  The reason behind the different figures stems from the application of the accruals concept in the income statement, which lead to the accrual of unpaid expenditure and the removal of prepaid expenses.  Further more, the prudence concept contends the need of provisions, which are non-cash expenditure like depreciation (Randall 1999).
Solutions that can be adopted to minimise the envisaged cash deficiency may take two main forms.  One encompasses tightening of the credit sales provided, where earlier payments are stimulated by providing a discount.  The other solution encompasses using sources of finance to cater for the capital expenditure of 18,500 envisaged during the year.  The organisation may opt for a short-term loan or acquire the asset through lease agreements in order to diminish the cash outflow that such investment will entail (Pike et al. 1999).