1. After examining financial data for a monthly period, the owner of a small business expressed surprise that the firm’s cash balance had decreased during the month even though there was substantial net income. Do you think this owner is right to expect cash to increase because of a substantial net income? Why or why not?
2. Is it reasonable to expect that all new businesses will have a net income from the first month’s operations? From the first year’s operations?
3. Why should managers be concerned with changes in the amount of creditors’ claims against the business?
4. How does an accounting system help managers control operations and make sound decisions?