Guam Accounts Receivable — Guaranty is a financial instrument that provides protection and reassurance to lenders, businesses, or individuals for unpaid debts or invoices. It acts as a guarantee or insurance for the amount owed by the debtor, ensuring that they will pay their outstanding balance. This type of financial service is particularly useful for companies or individuals dealing with high-risk clients or customers. Guam Accounts Receivable — Guaranty offers several benefits, such as reducing the risk of non-payment and providing peace of mind to creditors. By securing an accounts receivable guaranty, businesses can protect their cash flow, maintain financial stability, and minimize losses caused by defaulting customers. There are different types of Guam Accounts Receivable — Guaranty available to cater to the diverse needs of businesses and lenders. Some key types include: 1. Recourse Guaranty: This type of guaranty holds the guarantor personally responsible for the unpaid debts if the debtor defaults. In case of non-payment, the guarantor must compensate the lender or business for the amount owed. Recourse guaranty is commonly utilized when the debtor has a questionable credit history or lacks sufficient collateral. 2. Non-Recourse Guaranty: In contrast to recourse guaranty, non-recourse guaranty limits the guarantor's liability only to the collateral or assets pledged. If the debtor fails to pay the outstanding balance, the lender or business can seize the pledged assets but cannot hold the guarantor personally accountable for the remaining debt. This type of guaranty is often utilized when the debtor has valuable assets or collateral that can be easily liquidated. 3. Standby Letter of Credit: Although not strictly an accounts receivable guaranty, a standby letter of credit serves a similar purpose. It provides a secondary guarantee to the creditor that payment will be made by a financial institution if the debtor defaults. Unlike traditional guaranties, standby letters of credit are typically issued by banks and involve a fee paid upfront. Businesses and lenders in Guam can choose the most suitable type of guaranty based on their risk appetite, financial situation, and the specific requirements of the debtor. Having an accounts receivable guaranty in place can protect businesses from potential financial losses and provide them with greater confidence in managing their cash flow. Keywords: Guam, accounts receivable, guaranty, protection, unpaid debts, invoices, guarantee, insurance, lenders, businesses, individuals, default, risk, cash flow, financial stability, losses, recourse guaranty, non-recourse guaranty, collateral, assets, pledged, standby letter of credit, financial institution, risk appetite, financial situation, credit history, peace of mind.
Guam Accounts Receivable - Guaranty
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Key Principles of ASC 460 Scope: ASC 460 applies to guarantees issued or modified after December 31, 2002, and covers various types of guarantees, including loan guarantees, performance guarantees, and indemnification agreements.
The value of the guaranteed obligation/loan is calculated by discounting the expected cash flows (principal and coupon payments under the risky rate) at the guaranteed rate, while the value of the non-guaranteed loan is discounted at the risky rate.
A common example of a financial guarantee contract is a parent company providing a guarantee over its subsidiary's borrowings. Because these contracts transfer significant insurance risk, they typically meet the definition of an insurance contract.
One common example of this type of situation is where a hospital lures a doctor to open a practice in an underserved community with a guarantee of fee income for an initial period. ASC 460 explicitly states that these types of assurances are guarantees and must be given accounting recognition.
Ing to US GAAP, the company's accounts receivable balance must be stated at ?net realizable value?. In basic terms, this just means that the accounts receivable balance presented in the company's financial statements must be equal to the amount of cash they expect to collect from customers.
A corporate guarantee means the company is standing behind the contract, and guaranteeing performance. A financial guarantee means that whoever ( corporation or individual) is indemnifying (guaranteeing) the financial performance of the contract.
In most cases, financial loan guarantees are required to be recorded as a liability in the balance sheet at their fair value when they are issued, with expected credit losses that exceed the initial fair value recognised subsequently.