Sunday, July 5, 2009

Bond and finance

One of the main ways that companies raise cash for financing their operations and other business needs is through the issuance of bonds. Bonds are a main source of debt financing by companies, while the other main source is equity financing through the issuance of shares.
Investors purchase bonds because they pay some amount of interest to the purchaser, and additionally, the face amount of the bond will be paid at the bond maturity in the future.
We will look at bonds from both standpoints (the issuer and the investor), but our focus will be largely on the issuer of the bond and their accounting for the bonds. However, before discussing the accounting for bonds, it is important to make certain that we understand what is happening in respect to a bond, and in particular cash flows associated with the bond.

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