Firms, nowadays, can raise capital from investors (equity capital) or from lenders (debt capital). One of many fundamental differences between both sources of capital is that debt capital must be refunded later on whereas equity capital will stay in the firm eternally. Additionally, interest is accrued by debt. The business is legally bound to repay its debt and the interest cost to the debt holders on specific dates but it doesn't need to return the equity capital to its investors.
The companies that try to recover their money can be taken over by the debt holders if the company defaults on its debt repayments. This note explains the way to account for long-term debt. Particularly, the note illustrates bookkeeping for bonds, loans and mortgages. It describes how bonds work and offers an example of bonds issued at par, at a premium and at a reduction. This process is also used for the accounting of capital leases.
PUBLICATION DATE: May 02, 2016 PRODUCT #: IES535-PDF-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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