Accounting All-in-One For Dummies (+ Videos and Quizzes Online), 3rd Edition

Chapter 6

Planning for Long-Term Obligations

IN THIS CHAPTER

Identifying long-term liabilities

Reporting gain or loss on debt extinguishment

If you own a car or house you financed, you’re probably all too familiar with long-term debt: loans that won’t be paid off by the end of the next 12-month period. Well, companies have long-term debt too. A company usually uses current debt as a vehicle to meet short-term obligations like payroll and incurs long-term debt to finance company assets.

In this chapter, you get the lowdown on two types of long-term debt: notes and bonds payable. Notes payable are debt a company takes on typically through lending institutions, such as banks, to finance asset purchases. Asset purchases include cars, equipment, and buildings. Hospital and municipalities issue bonds payable (although corporations can issue them too). Here, you find out all you need to know about this complicated topic.

Managing Long-Term Debt

An immutable fact of running a business is that at some point the company will have to take on long-term debt to grow its operations. After all, unless the business owners are running the business just for fun, they want to expand operations in the hopes of making more money.

The way you structure long-term debt affects the expense of borrowing ...