You're the Chief Financial Officer responsible for overseeing accounting and finance at Tone International, we are currently in the process of applying for a $3,000,000 loan from the bank. Part of the loan application requirements entails providing the bank with the company's financial statements for the entire duration of the loan's outstanding period. The bank specifically mandates that all financial statements must adhere to the accrual basis of accounting, while our company presently employs the cash basis of accounting.

You must compose a memorandum to our Chief Executive Officer, Ralph Wilson, outlining the reasons why utilizing the accrual basis of accounting and adhering to other aspects of Generally Accepted Accounting Principles is the preferred approach over the cash basis of accounting. It is crucial to note that the bank is making this a mandatory requirement.

In typical business practice, addressing critical issues and concerns is best conveyed in written form to ensure accountability for the stances taken and the solutions proposed. This communication will encompass pertinent background information, the rationale behind our choice, and additional supporting evidence for the conclusions we have arrived at. Background Information for the Assignment Tone International, Inc., operating on a cash basis with a December 31 year-end, is facing a critical decision regarding its accounting practices. CEO Ralph Wilson, a staunch advocate of cash accounting, believes in recognizing revenues and stock issuance only upon cash receipt, and expenses and asset acquisitions only when paid. As the CFO, responsible for accounting, finance, and financial reporting, it falls upon you to persuade Wilson of the advantages of accrual accounting. The company's eligibility for a crucial loan is at stake. Accrual accounting offers a more accurate reflection of the company's financial health, capturing economic events when they occur, regardless of cash movements. This method provides a comprehensive picture of income, expenses, and financial position, offering more informed decision-making and aligning with conventional financial reporting standards. Transitioning to accrual accounting could enhance the company's financial credibility and facilitate a successful loan application. Instructions Write a memorandum using the following heading and write to Mr. Wilsons as to why the Company should use the accrual method of accounting (as opposed to the cash basis method):

To: Ralph Wilson, CEO From: Your Name Subject: Why the Company Should Change to the Accrual Method of Accounting The memo should not exceed a full page using single space, but if it is longer, that is fine. In your memo, address why the accrual basis of accounting is preferred [to the cash basis] and include the importance of accounting periods, matching, and using classified financial statements (i.e., balance sheet for this assignment). Also, its important that you incorporate how fulfillment of rights and responsibilities affects how the company records revenues, expenses, assets and liabilities. Also, include why the recording of financial transactions and the financial statements prepared under the accrual method will help make better management decisions, and is a better alternative than the cash basis of accounting that the company now uses. In your memo to the CEO, include the following accounts and why using the accrual method of accounting is important (and better) for analyzing and reporting these account balances, and changes to them: - Cash - Accounts Receivable - Prepaid Insurance, Advertising, and Rent - Inventory - Equipment (in this case, laptop computers and other computer equipment) - Accrued liabilities (i.e., salaries & wages and interest on a loan with the bank) - Unearned Revenue - Capital stock and dividends (optional, since we have not completed the stock chapter) - Revenues/Sales - Expenses

It matters how well you spell, use grammar, be persuasive overall, and show that you understand the subject conceptually.