Earning Management

DatePresident Kappeler, CEOKappeler Corporation,125 Wall Street,Middleton, Kansas 67458.

Dear Mr. Kappeler,

I have good news and bad news about the financial statements for the year ended December 31, 2010. The good news is that net income of $100,000 is close to what we predicted in the strategic plan last year, indicating strong performance this year. The bad news is that the cash balance is seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these situations occurred simultaneously.

Net income or profit is the amount that remains with the company after deducting all the expenses; it is what the company has earned with ...