QUESTION FOUR

(a)

Income received in advance is considered a liability. Referring to definition and recognition criteria, why income received in advance is a liability and secondly why it is classified as a current liability.

(b)

Why are larger companies so heavily regulated as regard financial reporting and what they produce publicly as compared to partnerships and sole traders? HINT: As part of your answer address the concept of ownership versus control of the business and the liability of owners under different business structures

(c)

The benefits of managing the working capital of a business include both profitability and liquidity improvements. Discuss with reference to the cash operating cycle how it impacts a business's liquidity and profitability.

(d)

Discuss the major purpose of a business preparing cash budget and three possible strategies it could implement to improve cash flow from operating activities. As part of your suggested strategy to improving cash flow consider a potential associated negative consequence on profitability.