ACC 210 Lecture Notes - Lecture 10: Unsecured Debt, Effective Interest Rate, Sinking Fund
Document Summary
Chapter 10 (part 1) - reporting and analyzing liabilities. Capital structure is the mixture of liabilities and se used by a business. Generally are debt obligations that extend beyond one year, or the operating cycle (whichever is longer) Often used to finance and expand operations. Ltd usually higher in industries that use lots of pp&e. Interest expense on debt is tax deductible. Taxable income is less than it is without the interest on the debt. Fixed amount of compensation to the lender. Can plan for the cash flow needs for interest expense & debt retirement. In periods of inflation, debt permits borrowers to repay the lender in dollars that have declined in purchasing power! Creditors do not share in profits of the company. Non-installment notes (interest only until note becomes due) Installment notes (each payment includes interest and principal) When borrow money from a lender (e. g. a bank) typically sign a formal agreement (or contract) called a note"".
