Explaining discrepancies between cash flow and operating income The following selected information was drawn from the records of Fleming Company:

Fleming is experiencing cash flow problems. Despite the fact that it reported significant increases in operating income, operating activities produced a net cash outflow. Recent financial forecasts predict that Fleming will have insufficient cash to pay its current liabilities within three months.
Required
Write an explanation of Fleming€™s cash shortage. Include a recommendation to remedy theproblem.

Transcribed Image Text:

2011 2012 Assets Accounts receivable Merchandise inventory Equipment Accumulated depreciation $ 400,000 $ 840,200 1,480,000 1,861,200 (402,400) 1,484,000 (312,000)