Can a firm go out of business while making an accounting profit. Think about a company that buys a lot of inventory, starts a factory running and then sells most of the product (at a price far above cost)to a customer who is slow in paying. Exactly why may the company fail?

Yes. Accounting profit is recognized when a sale is made even though the money is uncollected. If a substantial number of customers never pay, the firm will not have the cash to pay for its inventory or to pay its employees. If that happens vendors will sue and employees will leave forcing the firm out of business. (See the box "Going Broke Profitably" at the beginning of Chapter 15 on working capital management for a detailed description of the phenomenon.)