Introduction to Accounting & Finance - Essay Example

is that all the partners can be held liable for the acts of other partners which is done in the name of the firm that they form and a person may be held responsible for acts that he has not committed. (Business guide n.d.) An advantage of this business structure is that there are very little formalities in the establishment of the business and all the partners can pool their expertise and resources for a common purpose and profit sharing. (All business n.d.) Once the capital has been input by the firm, it will take 2 weeks for the raw material to be supplied to the firm and 6 weeks from there to manufacture the raw material and transform it in to finished goods.

(Bized n.d.) During the period, i.e. after 2 weeks from the payment of raw material and 6 weeks from the date on receipt of raw material, the goods will be converted in to finished goods. They may face some blockage with the liquidity and the working capital as they have given the customers a credit period of 2 months and the suppliers a credit period of 1 month which means that the customers will take longer to pay for the goods while the suppliers will have to be paid in lesser time, therefore the firm will always be short of cash and will depend on the customers as to when they return the money only then they can produce more goods.

This may cause some idle periods in the production as they will have to wait for the payment to be made to them. They can obtain a greater credit period from the suppliers which is longer than the period that they are offering their customers of try and reduce the credit period of the customers through renegotiation which will allow them to generate the cash from its customers and purchase more raw material will enable the production process to go on without any halt and the working capital will be available without interruption in the production.

It cannot be said to be a correct representation of the company’s cash position at the end of October. This is because