Answer to Question #306108 in Accounting for Shannie

Question

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. . Based on this information, compose a paper that addresses the following:

• What would you do if you found your school in this situation?
• Would you issue more debt? Explain.
• Are there alternatives? Explain.
• What are some positives and negatives to the promissory note practice?
• Please explain at leasttwo positivesand at leasttwo negatives.

Answer 1

The school not have enough money to cater finance at present but that doesn't imply we need a long term financing solution as revenue will be disbursed in the near future,thus to cover the expenses temporarily,I will create a promissory notes payable via loan which will be paid within the school accounting year.To cover the expenses temporarily until the revenue will be received more debt will be issued with an agreement for short term payable with an interest.

°Other alternatives are Bill of exchange and personal checks.bill of exchange is legally binding agreement by one party to pay a fixed amount of money to another party on demand or within a predefined time plan.personal checks requires the banker to pay a fixed amount of money on demand to the bearer of the check as per given instructions.positive impacts of promissory notes , does not involve a lot of formalities giving you access to finances faster making it simple and straight forward.It is flexible thus issuer can use the funds obtained without preconditions.Negative impacts it is a short-term source of finance and there are possibilities that the issuer may fail to honor the note resulting in losses for the Payee