BU121 Study Guide - Final Guide: Effective Interest Rate, Interest Expense, Credit Risk
Document Summary
Non-current liabilities are all of the entity"s obligations not classified as current liabilities such as long term notes and bonds payable. Long term debt reflects a contractual obligation whereby the borrower receives cash or other assets in exchange for a promise to pay the lender a fixed or determinable amount of money at a specific date in the future. Long term debt has advantages such as the fact that shareholders maintain control, interest expense is tax deductible and the impact on earning is positive. With risks such as the risk o bankruptcy and negative impact on cash flows. A credit card is unsecured meaning that if the debtor fails to make the required payment, or defaults, the lender cannot repossess any specific asset of the cardholder. A bond usually requires the payment of interest over its life, with the repayment of principal on the maturity date.
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