Debt

Debt is any money borrowed from a 3rd party that has to be paid back. Companies will typically use debt either as a cheap means of funding, or to fund purchases would otherwise be unaffordable to them. Usually, debt is repaid over a specific time period with a pre-determined rate of interest being paid on the debt. The repayments of the lump sum are called principal and the interest payments are just called interest. Often, debt has to be backed by some form of asset (known as collateral), for example the house itself backs a mortgage. Debt can be issued in many forms with the most common being bonds, mortgages or cash loans.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Retained Earnings
• Fraud Triangle
• Accounts Receivable Turnover Ratio
• Marginal Cost Formula
• Nash Equilibrium