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.
Explanation
A company can issue bonds, and therefore bonds payable, that have different rules or features. Generally, the obligation under bonds payable takes one of the following two forms:
Interest charges on the bond, which will be paid to the bondholder at a specified rate and frequency.
A fixed value to the bondholder, which represents the face value of the bond, where payment occurs on a specified maturity date.
While the liability associated with this debt appears on the balance sheet, the payment of interest due on bonds flows through the income statement as interest expense.
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.
The financial accounting term long term investments is defined as those investments owned by the company, with the intention to hold onto these assets for many years. Long term investments appear as an asset on the company's balance sheet.
The financial accounting term interest expense is used to describe the interest payments that have come due on amounts borrowed by a company or an individual. Interest expense will appear as a line item on a company's income statement.
The term debenture bond refers to debt issued by a company that is not secured by collateral. Debenture bonds are a source of capital and would appear as liabilities of the company on the balance sheet.
The financial accounting term bond sinking fund is used to describe cash that is set aside by a company, which is to be used to repay money owed to bondholders. A bond sinking fund is typically overseen by a trustee, who is responsible for the repurchasing of maturing bonds on the open market.
The term act of bankruptcy refers to an action taken by a debtor that becomes the foundation for a creditor to file a petition in court to declare the debtor bankrupt. While there are many acts of bankruptcy that can become the basis for this filing; in some jurisdictions, it can be as simple as failure to pay an obligation on the date it is due.