The financial accounting term long term debt is defined as the loans and other debt obligations of a business that are payable in twelve months or longer. Long term debt appears in the liabilities section of a company’s balance sheet.
Companies require capital to maintain operations as well as grow revenues. Investments in new projects can be used to produce more goods or provide additional services to customers.
Capital funding can be provided by both the owners (common shareholders) as well as bondholders that choose to invest in the debt issued by the company. The bylaws of a company normally require the approval of the board of directors prior to issuing of bonds, or other forms of long term debt.
Long term debt is a somewhat permanent means of financing growth, and this financial leverage allows companies to increase the return on investment to shareholders. Long term debt may also include bonds payable, pension obligations, long term notes payable, mortgages, and long term leasing obligations.