Question

The Chief Financial Officer (CFO), Karl Richland of Semtell Company in Cincinnati, Ohio is asking for your advice. The CFO explains sales are increasing but there is a constant matter of not having enough cash to meet payroll or pay vendors within 30 days.

Checklist: Prepare a business letter (see the rubric) to the CFO to explain:

1. Explain why cash can go down even when sales are up; refer to “receivables.”
2. Analyze the scenario and explain three accounts the CFO should review each day and explain why. Focus on short-term balance sheet accounts, i.e., “receivables and payables.”
3. Your business letter should:

• Use the accepted business letter format and example as provided above.
• Utilize Standard English and use correct spelling and grammar.
• Provide a clearly established and sustained viewpoint and purpose.
• The writing should be well ordered, logical and unified, as well as original and insightful.

Must be 2 pages double spaced

Answer 1

14th January, 2020

Karl Richland, CFO,

Semtell Company,

Cincinnati, Ohio

Dear Sir,

“The company’s sales are increasing but there is a constant matter of not having enough cash to meet payroll or pay vendors within 30 days”. This letter will explain “why cash can go down even when sales are up” by analysing Sales and short term balance sheet accounts like Cash, Accounts Receivable and Accounts Payable. This letter will also “Analyze the scenario and explain three accounts the CFO should review each day”.

Cash can be short due to increase in Accounts Receivables where the customers are buying goods and services on credit. Therefore, the company lacks to pay its payroll or pay vendors within 30 days. Banks pay more loans and leases to companies which has the less default risk and has secured ‘Accounts Receivable’. With the accrual concept of Accounting, Sales are recorded on accrual basis whether sales are on credit or cash. This is the reason why sales are increasing but cash can go down.
CFO should review three accounts each day, i.e. Cash, Accounts Receivables and Accounts Payable.

Cash should be audited each day physically so that the cash in books of accounts matches with the physical count of cash. All the parties in the Accounts Receivable should be contacted and a confirmation should be received from them regarding payment within 30 days of delivery and the amount they are required to pay. Accounts Payable should be monitored and the creditors should be paid on 30 days credit basis. As parties in the Accounts Receivables pays cash, cash goes up and it can be used for payment to payroll and pay vendors.

Thank You,

Yours sincerely,

Nidhi Bathwal