Written Assignment Unit 6 PDF

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Written assignment Unit 6 University of The People Business 1102: Basic Accounting Instructor: Mitra FarkhaniIntroduction A common practice for government entities, particularly schools, is to issue short-term (promissory) notes to cover daily expenditures until revenues are received from tax collec...

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Written assignment Unit 6 University of The People Business 1102: Basic Accounting Instructor: Mitra Farkhani

2 Introduction A common practice for government entities, particularly schools, is to issue short-term (promissory) notes to cover daily expenditures until revenues are received from tax collection, lottery funds, and other sources. School boards approve the note issuances, with repayments of principal and interest typically met within a few months. The goal is to fully cover all expenses until revenues are distributed from the state. However, revenues distributed fluctuate due to changes in collection expectations, and schools may not be able to cover their expenditures in the current period. This leads to a dilemma—whether or not to issue more short-term notes to cover the deficit. Short-term debt may be preferred over long-term debt when the entity does not want to devote resources to pay interest over an extended period of time. In many cases, the interest rate is lower than long-term debt, because the loan is considered less risky with the shorter payback period. This shorter payback period is also beneficial with amortization expenses; shortterm debt typically does not amortize, unlike long-term debt. Based on this information, compose a paper that addresses the following:

What would you do if you found your school in this situation?

In my opinion, I would first consider the schools budget, what expenditures are required for short term. Are there any budget cuts that can be made short term that would not affect the operation of the school? I would look at the tax revenues and make a projection on will the school continue to have a shortfall maybe due to lowered property values and if so, how long will the school experience these revenue shortfalls. These would be some of the issues I would consider before deciding on if another short-term loan would be beneficial.

3 Would you issue more debt? Explain.

In my opinion, that would depend on the situation, if this an immediate situation and debts need to be paid, I would issue more debt under certain circumstances. If the school’s budget is on target, but there is just a delay in receiving tax revenues, I would recommend getting another short-term promissory note. I would also consider if it’s possible to get another short-term promissory note to cover immediate expenses and also to pay off any promissory notes that are coming due. That would give the school the time needed to continue operations without disruptions. If, however the deficit is due to overspending, I would make budget cuts accordingly to prevent these same issues next year. Budget cuts will not resolve the immediate deficit but will help in bringing the budget in line next year.

Are there alternatives? Explain.

Schools may consider an alternative revenue generation; this may help bridge the budget gap. Schools may share specialty staff and services; this approach will save money with sharing the cost of having a full-time staff member. Schools can rent out their available premises when school is not in session. Schools can invest in green energy as in solar panels to save on utilities. Fundraising may be another option to help the school pay for extra activities such as sports (Nikolaflint,2017).

What are some positives and negatives to the promissory note practice?

Some positives of a promissory note are that you can receive immediate cash without having to go through a lengthy loan process. A promissory note is simplistic and straightforward as in

4 amount due, interest rate and repayment schedule. A promissory note is less formal than a contract with less terms.

Some negatives are that it is not beneficial for more complex loan arrangements. Interest rates may be higher than a conventional loan. Payments may be higher due to the fact it’s a short-term loan (Kokemuller, 2020).

In Summary, a short-term loan may be fine but would depend on the situation, I would only recommend more debt only if this an immediate situation and debts need to be paid. I would also consider alternative revenue generation if that was an option.

References; Nikolaflint (2017) School financial success, Schools generating income, a risky business, Retrieved from: https://schoolfinancialsuccess.com/schools-generating-income-a-risky-business/ Neil Kokemuller (2020) Sapling, Advantages and disadvantages of a promissory note, Retrieved from: https://www.sapling.com/6750772/advantages-disadvantages-promissory ....