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Organisations face a constant battle in choosing between liquidity and profitability. A certain degree of both is essential for an entity to survive, grow and prosper. But managers must constantly choose between the two. Every investment decision means choosing between liquidity (spending cash) and increasing future profitability (e.g., by buying new and more efficient equipment).

Discuss this ongoing dilemma and its relationship to accrual accounting. describe why profitability is not the same as liquidity and how both are reflected in published financial statements. Describe how the lack of either could cause an entity to go out of business. Base your answer upon your reading, further research and your own experience.

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