Long-term debt instruments, unlike equity instruments, represent the conditions under which a borrower receives a loan, including a promise to repay it. Bonds, notes, and mortgages (the three most common types of long-term debt) all obligate the borrower to repay the lender or face potential seizure of their assets according to the loan agreement. Many times, however, borrowers are simply unable to pay. The scale of this situation can range from the consumer who cannot repay his or her credit card balance to the government that defaults on its national debt. In these situations, the lender often has to forgive a portion of the debt as part of the settlement or restructuring. Learning how to account for debt forgiveness will allow you to confidently keep the books up to date in the event of a default or debt settlement.
Categorize the Nature of the Debt Edit
Accounting for Business Bad Debt Expense as a Lender Edit