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): What would be your concerns as the loan officer? What questions would you ask and what financial documents might you request of him/her? Chapter 3 discusses differences between Accrual basis and Cash basis accounting; and why Accrual basis accounting is important to practice. Explain the importance of Accrual basis accounting and how you might possibly verify that this company is following Accrual basis accounting.

Answer 1

Concerns of Loan Officer:

1. Whether the client would be able to pay back the dues(principal + debt)?

2. Whether the purpose stated by the client is genuine or not?

3. What is the present debt liability of the client due to other creditors?

Documents Required for Sanctioning Loan:

1. Income Statement

2. Tax Returns

3. PAN

4. Collateral Documents

5. Credit Rating

Accrual basis accounting is important because it depicts the true picture of the business helping the organisation to improve and attain accuracy. It helps the business to stay in compliance with GAAP. It also helps the organisation to attain more credit worthiness.It can be verified through the books of accounts.