Question

Assumption:

You work as a commercial loan officer in a local bank. The president of a small-to-medium sized fast-food restaurant chain, with 250 employees in five locations, comes into your bank and asks for a business loan of $400,000 to help fund his expansion plans for building two additional restaurant locations.

Question(s):

1-What would be your concerns as the loan officer?

2-What questions would you ask and what financial documents might you request of him/her?

3- Explain the importance of Accrual basis accounting and how you might possibly verify that this company is following Accrual basis accounting.

Answer 1

Answer:

As an loan official I will have the underneath worries before endorsing the credit.

• . Credit worth: I will check the present credit worthiness of the restaurant by confirming the previous history of repayments on any credits profited or by checking the repayment to outer borrowings. in the event that the historical backdrop of the restaurant in repayment is fine, at that point the organization is dealing with its store better.
• Projected cash flows: I will check the anticipated incomes of the restaurant and its sensibility. The fundamental presumptions in anticipating the incomes ought to be sensible. It ought to might be ensured by a specialist.
• Restaurant financial position: The business is dependent upon many risks and we may not comprehend what occurs. Henceforth the money related position ought to be great that is restaurant ought to have least resources for sell and repay them. I will take security charge of the assets before dispensing the credit.
• . Reliable incomes. The capital articulation examination will be done to fulfill that the organization is figuring out how to get convenient cash inflows to repay the installments and interest on an timely basis.

The above aspects  would be checked along with documents required, for example, Cash flow statements ,financial statements.

Accrual basis is favored over cash basis of accounting on the grounds that the pay of that year is precise and will match to the degree the organization wins that year however you don't understand the equivalent in real money. The cash basis accounting isn't favored on the grounds that present year salary might be understand or over expressed by and large. This can be checked by looking at the cash received in the cash flow statement will be taken as pay of the present year yet not profit acknowledged premise on the real cost of goods sold.