To:

The Board of Directors

From:

Rachel Suarez Guerra

Date:

February 13, 2022

Subject:

ACCOUNTING

Once bad debts are determined to be unrecoverable, the direct write-off approach, which is required for federal tax purposes, recognizes them as an expenditure. The allowances accurate numbers for uncollectible in advance, analogous to placing money in a reserve account. We decide that a purchaser will now no longer pay if we appoint the direct write-off approach. Under the direct write-off technique, we do now no longer document any estimations or observe the Allowance for Doubtful Accounts. For the quantity we decide will now no longer be paid, we report Bad Debt Expense. This approach departs from the GAAP requirement that sales and charges be suggested withinside the equal quarter. (2).

Allowance Method:

After every monetary year, an estimate of the quantity of awful debt is made. It is aggregated into provisions that are allocated to specific receivables as needed. An allowances approach is to set money aside for bad debts that are likely to eventuate. The reserves are calculated as a percentage of revenue made during a period ending, with the hazard related to specific clients considered.

The amount the firm anticipates recovering from accounts receivable is known as net realizable value. The corporation does not know which individual accounts will become uncollectible when it makes the bad debts adjustment entry. (1).

Decision:

When it is decided that the debt will not be recovered, the straight write-off technique permits a company to write off the obligation. The straight write-off approach results in an instant write-off of debt expenditure and a decrease in AR. The allowance technique entails a company putting a proportion of every dollar of sales into a reserve account that may be used to claim future bed debt charges. As a result, once a company makes a transaction, it quickly recognizes bad debt.

Since it simplest takes one document to debit terrible debt rate and credit score receivable. The direct write-off procedure is a quicker way of handling bad debt. Because it entails the setup of provisions accounts, the allowances strategy is more complicated.

Whenever a small business feels that an invoice is uncollectible, it can use the direct write-off method to debit the bad debt account and credit the receivables. That helps clear the income record and any outstanding debts owed to the firm.

A company will almost always prefer the allowance technique over the straight write-off method since it allows them to forecast future bad debt expenditures rather than being blindsided by an uncollectible account. That aids the organization in reducing the danger of overestimating income for a certain time.

Timing, correctness, and the amount shown on the balance sheet are the main differences between the two. That is because direct write-off delays recognition until it is known that the receivable is bad, while the allowance begins at the point of sale.

The direct write-off method's accuracy is higher because it is against actual invoices, whereas allowance is an estimated amount, and because the allowance method reserves against the AR on the balance sheet, it tends to lower AR reported.

To:

Board of Directors

From:

Rachel Suarez Guerra

Date:

Feb 27, 2022

Subject:

Investment Strategies

Following your request to explore the company's financial state, I have researched the requested areas and would like to share my findings with you. I hope that the information I will share with you will provide the clarity needed for the company's growth. Below, I have covered the various parts revolving around the company's financial state. 

Debt versus equity securities 

     These are the two security types that are significant factors to consider when accounting for an investment. Debt securities entail the borrower repaying the principal the initial principal, while equity entails ownership of the company's net assets. However, a very recent finding shows that managers do not reduce the risk of equity investment portfolios (Kim et al., 2022). An example of debt security is a bond, while stock is equity security. When buying a bond in a company, they are repaid both the principal and the interest accrued. However, when it comes to stocks, if an individual buys stocks in a particular company, they buy a piece of the specific company. Therefore, the investors profit in the case of profits, and the same applies to losses. 

Various types of investments 

     Classes of debt securities are held to maturity, trading, and available for scale, while those of equity include insignificant influence, major influence, and controlling influence. Additional examples of debt securities include corporate bonds, municipal bonds, government bonds, and collateralized bonds. In contrast, more examples of equity securities would include common preference shares, warrants, convertible bonds, and depository receipts. An extensive look at the types of equity security is that the preference shares are mostly chosen by many people over the common shares while claiming company earnings. Preference shares can either be progressive or non-progressive and either engaging or non-engaging. In contrast, in common shares, the investors are required to participate in the decision-making and operations of the organization. 

How to account for investments 

     Accounting for investments in securities is categorized under short (current liabilities) and long term. Under current liabilities investments -held to maturity are reported to be costly, with no discount or surcharge remuneration, debt investments trading category is a fair value possessing equitable market value to earnings as well as debt investments under available for sale and stock investments-insignificant influence only differing on adjustment to equity and accustoming to earnings respectfully. 

     On interminable long-term investment in debt securities, investments held to maturity (HTM) are accounted at cost with reduction or surcharge amortized; liability investments available for sale are equitable value accustoming to equity like stock investments (with fair value adjustment to income). Equity method investment-major influence is reported as an equity method with no equitable value adjustment like consolidated investments -controlling influence under the integrated procedure. 

     To sum it up, it is vital to keep track of its financial condition. This tracking can be done in diverse ways, such as analyzing the consequences of managerial decisions, which can be done through a tool for prospective analysis of companies' financial statements (Osadchy et al.,2018). Others include recovering outstanding debt and reducing or rearranging company expenses, seeking advice from professionals and more experienced financial experts who would also help. Nonetheless, constant education in this area is needed. Employees in the finance department would require this training to keep up with constant growth.