Yes, the both sides are right.

The Treasurer’s contention is based on the point that firm is running on

cash whereas the Controller’s contention is based on the point that the firm is profitable. Firm's cash
position is may not necessarily aligned with the profit position. Cash position is based on actual cash
inflows and outflows. Profitability is based on lot of other factors which although show that organization
is into profit but actual cash position may not be very favorable. This is because of poor working capital
management. If revenue is growing much faster than the overall cost but most of the transactions are
paid long-term,

The end-of-year parties at Yearling, Inc., are known for their extravagance. Management provides the
best food and entertainment to thank the employees for their hard work. During the planning for this
year’s bash, a disagreement broke out between the treasurer’s staff and the controller’s staff. The
treasurer’s staff contended that the firm was running low on cash and might have trouble paying its bills
over the coming months; they requested that cuts be made to the budget for the party. The controller’s
staff believed that any cuts were unwarranted, as the firm continued to be very profitable. Can both
sides be correct? Explain your answer

There are different ways to look at a company’s health. One is through accrual basis which recognizes
revenue when it is earned, even when the actual payment has not been received yet. This is how
accountants record the company’s transactions. Another way of portraying a company’s health is
through the cash basis, which recognizes revenue only at the time that the money changes hands. The
cash basis focuses more on the inflow and outflow of cash. Financial managers therefore would look at
the cash flow statement.

In the case of Yearling, Inc., both the treasurer’s and the controller’s argument can be considered
correct. The treasurer’s staff was right to raise a concern about the company’s ability to pay off its bills
in the upcoming months basing on the cash that the company has. On the other hand, the controller’s
argument that the company is still profitable despite being low on cash can also be correct. This is
because the firm’s cash position may not necessarily align with its overall profitability, and the company
might be experiencing what one would call a cash crunch which happens when firm’s cash is running low
and its operations are getting affected by it. If we were to look at it in the sense of liquidity, it means
that the company is not liquid enough for it to be able to settle its short term liabilities. Therefore, both
parties can be correct in their statements pertaining to the health of the company. However, if we were
to look at the controller’s staff’s statement that cuts were unwarranted, we can consider this person
wrong, seeing as there is a need for the company to take action in order for them to stay in operations
by securing enough cash to pay for their bills in the next few months.