As Part of a Loan Agreement That It Is Thinking

question 24

Essay

As part of a loan agreement that it is thinking of obtaining,Always Quick Manufacturing Limited has decided that it will use accounts receivable and inventory as security for working capital funds.The bank has indicated that in addition to an annual financial statement audit,it would require quarterly assurance on the accounts receivable and inventory amounts.The type of assurance required has not been stated.The bank has told Jose,the owner of the company,that he would need to provide a detailed inventory list and an aged accounts receivable trial balance on the fifteenth of each month for the information as at the preceding month end.Jose would like to know what his alternatives are.
Required:
Your partner is going to meet with Jose next week and would like you to prepare a memo to file that will be used as part of the meeting.Draft a brief memo that includes a list of alternative types of engagements that could be used to provide assurance on the accounts receivable and inventory balances.

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Definitions:

Balance Sheet

A comprehensive outline of a business’s financial assets, liabilities, and the equity of its shareholders, aimed to portray the financial standing at a precise point in time.

Stockholders' Equity

Stockholders' Equity is the residual interest in the assets of a corporation after deducting liabilities, essentially what is "owned" by the shareholders.

Investments By Stockholders

Money or other assets that shareholders put into a company to acquire ownership interests.

Stockholders' Equity

Represents the residual interest in the assets of a corporation after deducting liabilities.