Applying accounting concepts, Assumptions and principles to explain business act

Question

Applying accounting concepts, Assumptions and principles to explain business activity) apply your understanding of the relationships among the financial statements to answer these questions. 1. How can a business earn large profits but have a small balance of retained earnings? 2. Give two reasons why a business can have a steady stream of net income over a six-year period and still experience a cash shortage. 3. If you could pick a single source of cash for your business, what would it be? Why? 4. How can a business lose money several years in a row and still have plenty of cash?

Explanation / Answer

Could have a huge amount of capital that they have to pay for. Upkeep, office supplies, retirements, insurance, just to name a few.

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