What you will learn to do: recognize long-term debt financing options

There are two basic ways companies raise money for long-term capital projects:

• Debt financing
• Equity financing

Equity financing means bringing in new owners and is addressed in another module. In a prior module, you were exposed to short-term financing options, such as notes payable, revolving lines of credits, and accounts payable. Short-term financing is usually used to fund current operations, and that’s why it is classified as a current liability. In this module, we’ll be studying using long-term debt to finance expansion and other capital projects.

This section will cover the basics of recording borrowing from a bank, including the ramifications of paying interest on money, which is basically like rent. In subsequent sections, we’ll cover more sophisticated forms of long-term borrowing, including leases and bonds, as well as some of the other noncurrent liabilities that companies incur in order to do business.