Debt is a general term for the various types of interest-bearing loan agreements under which a company has borrowed funds, which it is contractually obligated to repay along with interest costs. Debt instruments include promissory notes, lines of credit, mortgage notes, credit card debt and a wide variety of interest-bearing financial instruments. Debt is recorded as a liability on the company's balance sheet, which is a financial statement that details the company's financial position. The balance sheet is formatted so that assets are balanced against liabilities and shareholders' equity.
Video of the Day
Book Value of Debt
For accounting purposes, debt is tracked using something called an amortization table. As the company makes its contractually obligated payments, a portion of each payment is allocated to the reduction of principal as well as to interest expense. This is necessary because interest expense is tax deductible. The amortization table details this allocation and displays the amounts paid, along with the current amount of principal remaining on the loan. This amount -- the original loan amount net of the reduction in principal -- is the book value of debt. Book value can refer to a specific debt, or to the total net debt reported on a company's balance sheet.