Applying for a business loan

¶ … Business Loan

The Short-term Assets Are:

Accounts Receivable 5000

Cash 15000

20,000 So $20,000 in short-term assets.

The long-term assets are:

Buildings and equipment 112,000 So $112,000 in long-term assets

Accounts receivable is a current asset because it represents sales made on credit that are due within one year. If the debt was due in more than one year, it would be a long-term asset. However, common business practice is that sales are collected within a year. The buildings and equipment are long-term assets because they cannot be readily converted to cash. They are capital assets, meaning that they form an integral part of the company and are not intended to be sold or used to make purchases.

You cannot pledge the retained earnings as collateral for the new loan. Collateral must be in the form of a physical asset, something for which title can be passed. Essentially, in the event of default the bank would seize the collateral and sell it to help cover their loss. There is no title that can be passed on retained earnings and they cannot be sold.

Not only are retained earnings not an asset, they are a form of equity. They represent an increase in the value of the firm that is genuine value. They offset an increase in assets that is not paid for by debt, and not paid for by any other form of equity issue. However, equity in the company cannot be used as collateral because its value fluctuates. The banker would have to consider that if the company is insolvent enough to require the bank's acquisition of collateral, retained earnings would not likely have any value remaining.

3) the current ratio is calculated as the current assets/current liabilities. The current assets are as follows:

Cash 15,000

Accounts Receivable 5,000

Total Current Assets 20,000

The current liabilities are as follows:

Accounts Payable 2,500

Customer Deposits 3,000

So therefore, the current ratio is as follows:

5500 = 4.18

This is a great current ratio. The ratio is a measure of a firm's liquidity, its ability to meet its pending debts. This company has a limited debt load, consisting of accounts payable and customer deposits. The current assets include accounts receivable and cash. With $15,000 in cash, this firm is very liquid at present.