NOTES PAYABLE AND BONDS PAYABLE: A COMPARATIVE ANALYSIS

Published: 2021-07-06 06:26:25
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Category: Business and Finance

Type of paper: Essay

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Businesses frequently raise their funds through different methods to attain financings for their regular operations or to cater a specific project. Borrowing amount in the form of loaning or issuance of bonds are two methods which are used widely to raise funds. Issuance of bonds includes notes and bonds payable; through these instruments, the tracking of repayment becomes convenient and practical. The subject accounts are similar in multiple aspects, yet the borrowing agreements fluctuate significantly for both.Notes payables represent the long-term liabilities of the business owner, and such debts are considered in the form of a loan. Such loans are meager, and the business owner hopes to cover them up through the issuance of bonds. On the other hand; bonds payable is a long-term liability of business owner that involved a larger amount of money. Such lending takes place to provide financing for big projects through investments of individuals and institutional investors. Evidently, bonds and notes payable are alike in terms of issuance and investments. Both can be easily bought and sold through different financial intermediaries and markets. Both are developed to be purchased at their par value, or premium and discount depend on the commercial market conditions and trends.Accounting treats bonds and notes payable in the similar fashion. According to accounting principles, both instruments are same because both of them are written agreements to pay the interests. Moreover, both financing tools promise to return the principal value on the maturity. Furthermore, for accounting purpose, bonds and notes payable are liability accounts, and their accrued interest is considered as a current liability. However, the maturity tenure varied for both instruments, and loans for less than one year most likely are notes payable.

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