Objectives : Apply accounting concepts; evaluate business activity.
Apply your understanding of the relationships among the financial statements to answer these questions.
a. How can a business earn large profits but have a small balance of retained earnings?
b. Give two reasons why a business can have a steady stream of net income over a five-year period and still experience a cash shortage.
c. If you could pick a single source of cash for your business, what would it be? Why?
d. How can a business be unprofitable several years in a row and still have plenty of cash?