Financial Accounting: In an Economic Context

SUMMARY OF KEY POINTS

Long-term notes payable, bonds payable, and leasehold obligations, and how companies use these instruments as important sources of financing.

Long-term liabilities include notes payable, bonds payable, and leasehold obligations. They represent obligations that require the disbursement of assets (usually cash) at a future time beyond the period that defines current assets. Notes payable refer to obligations evidenced by formal notes. They normally involve direct borrowings from financial institutions or an arrangement to finance the purchase of assets. Bonds payable are notes issued for cash to a large number of creditors called bondholders. Leasehold obligations refer to future cash payments (i.e., rent) that are required for the use or occupation of property during a specified period of time.

Long-term notes, bonds, and leases are common and major sources of capital for companies throughout the world. Funds used to acquire other companies, purchase machinery and equipment, finance plant expansion, pay off debts, repurchase outstanding stock, and support operations are often generated by issuing long-term notes or bonds, or entering into lease agreements.

Economic consequences created by borrowing.

Increased borrowing in the United States has forced managers ...