Purpose of the Statement

As an accounting manager for a growing graphic design company you are responsible for preparing the monthly financial statements and presenting them to the owner for evaluation. Since you have implemented many fiscal controls and new computer systems, the company continues to show improvement to the bottom line and is experiencing net income growth that exceeds the industry average for your region. This is something to be proud of. Due to this fact, the owner would like to increase her compensation 40%. She feels she should be rewarded for this increased performance. As part of this discussion you need to inform her that you are experiencing cash flow problems and you may need to increase the line of credit at the bank in order to pay suppliers and meet payroll. The owner is shocked to find that profits are up and cash is down.

 

What are some reasons that would explain this situation?

How would you explain this to the owner?

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