What is debt? To be sure the word debt becomes something that is often avoided by many people. In fact, not a few debts make people feel dizzy, hopeless and lost direction. Well, in this article we will discuss about the definition of debt, accounts payable, current debt, long-term debt, short-term debt, corporate debt and how to manage debt effectively. So, what is the meaning of debt? Debt is a sum of money borrowed by one party from another party. Later, this debt is used by individuals or companies as a method for making purchases that require large funds, which may not be able to be fulfilled by debt borrowers in financial conditionnormal ones. Therefore, the borrower requires some money as a debt given from the lender.
Then, how does the borrower repay the debt? Arrangements in debt repayment usually give permission to the borrower to borrow money under certain conditions. For example, the borrower will pay the debt with the same total amount plus the interest that has been agreed upon by both parties in advance.
Current debt is an obligation to pay debts that must be paid within one year or 12 months. In other words, current debt is a short-term loan or long-term debt that will mature in the next 12 months and requires payment of current assets.
Debts and receivables
Debt and receivables have become commonplace in organizations and companies. Proverbial, business and debt often go hand in hand, where the company must develop many things in its business and to develop it, the company requires a large enough loan from the lender.
Basically, accounts payable involve subjects and objects. In this discussion of accounts payable and debt we will get to know two parties. The first party is the person who lends money (the lender) which is called a creditor. Meanwhile, the second party is a person who borrows money (the borrower) is called a debtor. Examples of creditors are individuals or companies with legal entities such as banks, savings and loan cooperatives, and so on. Then, who are the examples of the debtor? Almost the same as creditors, the debtors are usually individuals or companies that need additional capital for their business ventures .
Based on accounting, debt is divided into two categories, namely, short-term debt and long-term debt. Let’s look at a more detailed explanation of the two types of debt.