Reading: Short and Long Term Debt Financing

•The assets or other financial resources available to a business are called capital.

•Purchases of plant assets used in the operation of a business are called capital expenditures.

•Assets pledged to a creditor to guarantee repayment of a loan are called collateral

•Bond: A long term promise to pay a specified amount on a specified date and to pay interest at stated intervals.

•All bonds representing the total amount of a loan are called a bond issue.
- The process of selling bonds is commonly known as issuing bonds.

•The face value is the amount to be repaid at the end of the bond term.

•The interest rate used to calculate periodic interest payments on a bond is called the stated interest rate.

Issuing Bonds

•Every business needs cash to pay its operating expenses. Purchasing inventory and paying the payroll are examples of daily activities that require a business to earn revenue.

•The payment of an operating expense is necessary to earn revenue is called revenue expenditure.