Long-Term Debt

Debt that is usually incurred to purchase long life types of assets. In general there is a matching principle of long term debt to fixed assets.

Debt Ratio

Debt is a natural part of business.   The most volume (number of transactions) of debt occurs with the simple purchase of materials (inventory) or supplies on account.   Every business buys on account whether it is a traditional vendor account like that found in retail or simply using a credit card.   A third party provides credit …

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Bookkeeping – Loan Accounting (Lesson 54)

Almost every small business borrows money.   The most common reason is to purchase a fixed asset of some sort.   The amount borrowed is most often a long-term liability.   There are several steps involved in recording the original loan and then processing the respective payments.   This article introduces the bookkeeper to long-term...

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Debt or Equity in Small Business – Fundamentals

Small business books and manuals explain the formula used to determine whether additional debt increases the return for investors commonly known as return on investment (ROI).   I find this laughable in our modern economic times given the low cost of financing.   For well qualified individuals, money can be borrowed at less than 6% …

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Amortization of Financing Costs

Amortization of Financing Costs

When a business acquires a loan there are typically closing costs involved.   Generally Accepted Accounting Principles (GAAP) require these financing costs to be amortized (allocated) over the life of the loan.  There are several principles the reader needs to understand to properly calculate and assign these costs to the financial statements.  This lesson explains the...

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Fixed Assets To Debt Relationship

Every business owner, especially young entrepreneurs, must understand how long-term debt  is used to finance the purchase of fixed assets . It is a basic principle especially for start-ups. There is a relationship that exists between the two. If created correctly, profitability is enhanced and cash flow is maximized. But most business owners lack the knowledge about...

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Long Term Debt – Financial Statement Presentation

Long Term Debt is one of the multiple forms of capitalizing a business.  It includes bonds, secured notes and mortgage notes.  In the world of small business, the most common form of long term debt is secured notes, most likely with recourse.  As an owner of a business you need to understand how this information …

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Insolvency and Bankruptcy – Know the Difference

Every business owner needs to know the difference between insolvency and bankruptcy.  Often these two terms are misunderstood and improperly used in conversation.  You need to know their correct meaning because both are used in civil law and both have different issues to address during the process.  In addition, understanding these two terms builds a...

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Quick Ratio – Definition, Explanation and Proper Use

Quick Ratio

The quick ratio is a formula used in business to identify the ability of a business to pay its current liabilities.  It is also known as the ‘Acid Test’ formula (ratio).  In the large markets this formula is one of the financial industry ratios used to value the stock of a corporation.  In the arena of the small business, you should only use this ratio as a means to gauge ability to pay your bills right now.

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