Definition
The financial accounting term long term debt is defined as the loans and other debt obligations of a business that are payable in twelve months or longer. Long term debt appears in the liabilities section of a company's balance sheet.
Explanation
Companies require capital to maintain operations as well as grow revenues. Investments in new projects can be used to produce more goods or provide additional services to customers.
Capital funding can be provided by both the owners (common shareholders) as well as bondholders that choose to invest in the debt issued by the company. The bylaws of a company normally require the approval of the board of directors prior to issuing of bonds, or other forms of long term debt.
Long term debt is a somewhat permanent means of financing growth, and this financial leverage allows companies to increase the return on investment to shareholders. Long term debt may also include bonds payable, pension obligations, long term notes payable, mortgages, and long term leasing obligations.
Related Terms
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
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The financial accounting term liability is used to describe the debt of a corporation that results from a transaction involving the transfer of an asset or the provision of a service. Liabilities are reported on a company's balance sheet.Moneyzine EditorNovember 6th, 2024.png)
Issuing long-term bonds represents an important source of financing for many large companies. The accounting term bond payable is used to categorize the payments due when a company issues an indenture or enters into a contract that represents a promise to pay. Since bonds payable represent a long term obligation of the company, they are shown in the long term liabilities section of the balance sheet.Moneyzine EditorNovember 6th, 2024
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