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Notes Payable, Long-Term Debt, and Interest Narrative

The Notes Payable, Long-Term Debt, and Interest process consists of the following activities: Bonds, Notes Payable and Asset Backed Liabilities (ABL) o o o o Issuance Interest Redemption Reconciliation

Debt Footnote Disclosure and Financial Statement Review Interest Other Debts

Bonds, Notes Payable and Asset Backed Liabilities (ABL) Issuance All proposals made to enter into future debt transactions (Bonds or Notes Payable) require the approval from the Board of Directors. The proposal presented to the Board of Directors for approval will include the total debt to be assumed and a repayment schedule (including dates and amounts to be paid) as either determined by the company (Bonds) or financing institution (Notes Payable or ABL). This proposal is prepared by the Treasury Analyst and Treasury Manager. Once approved, the Treasury Analyst will enter the details of the debt to be assumed into the Treasury Management Application System (TMAS). TMAS calculates and projects the future cash flows and updates a Master Debt Schedule with the new debt details. The information produced by TMAS is then used to book the entry to recognize the newly assumed debt. The Treasury Analyst will prepare the entry and submit to the Treasury Manager for review. Once approved, the Treasury Manager will book the entry to the general ledger (R_DBT_1, R_DBT_2, R_DBT_3, C_DBT_1). Interest Interest and debt payments are included in the Master Debt Schedule. On a monthly basis, the Treasury Analyst will prepare a journal entry to record the debt payments, accrued interest and interest expenses. The journal entries, which include the Master Debt Schedule as support, are submitted to the Treasury Manager for review and approval. Once approved, the journal entries are booked to the general ledger by the Treasury Manager (R_DBT_5, R_DBT_6, R_DBT_7, C_DBT_3, C_DBT_4). Redemption Similar to issuance of debt process, the process to redeem bonds or repay notes payable/ABLs prior to their term requires the approval of the Board of Directors. The Treasury Analyst and Treasury Manager will complete a Debt Relief Form, which includes a repayment schedule, interest/debt repayment date and repayment amount. Once completed, the form is submitted to the Board of Directors for approval. Once approved, the Treasury Analyst deactivates the debt in the TMAS by changing the maturity date to the date of cancellation (as approved by the Board of Directors). Once completed, the Treasury Analyst will prepare the required journal entries to record the redemption/repayment of the debt and submit, along with the approved Debt Relief Form, to the Treasury Manager for approval. Once approved, the Treasury Manager will book the entry to the general ledger. Reconciliation On a monthly basis, the Treasury Analyst prepares a reconciliation of the TMAS to the general ledger (R_DBT_4, C_DBT_2). Additionally, the Treasury Analyst will reconcile the bank statements to the general ledger to ensure all payments have been recorded and paid appropriately (R_CAS_7, C_CAS_1). For notes payable and ABLs, the company is required to meet certain financial debt covenants. As part of the issuance process, the Treasury Analyst and Treasury Manager will collect all information requested by the financial institution. Annually, a compliance certificate is certified by the Board of

Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.

Directors and VP of Treasury and issued. The letter certifies that the company is in compliance with the covenants contained in the debt agreements and is not in default with any terms or provisions. Debt Footnote Disclosure and Financial Statement Review: On a monthly basis, the Senior Accountant performs an analysis of the companys debt for classification purposes. The analysis, called the Debt Classification Analysis, organizes the debt based on payment due date as to determine whether the debt should be classified as current or long-term. Debt is classified as current liabilities when the amounts are due within one year of the balance-sheet date. When the debt is long-term (matures after one year) but requires a payment within the 12-month period following the balance-sheet date, the amount of the payment due within the 12-month period is classified as a current liability in the balance sheet. The portion of the debt to be paid after the 12month period is classified as a long-term liability. This classification is to ensure that the company classifies debt in accordance with GAAP the applicable financial reporting framework as to properly disclose the liabilities (R_PDI_20, R_PDI_21) and as per valuation methodology. A valuation analysis is performed by the Senior Accountant (R_PDI_27, C_PDI_14). Once completed, the analysis is submitted to the Accounting Manager for review (C_PDI_2). During the review, the Accounting Manager will reconcile the details in the analysis to each of the debt agreements (R_PDI_22). Once approved, the Senior Accountant adds the analysis to the debt footnote disclosure to be included in the companys financial statements. As part of the footnote preparation process, the Senior Accountant will detail the components of the debt, describing the significant terms (e.g., repayment, interest rate, and conversion option) and conditions related to individual debt components (R_PDI_23). For each of the companys debt obligations, the Senior Accountant will detail the interest expense, effective interest rate, and estimated amortization of debt discount are disclosed (R_PDI_24). Finally, the Senior Accountant will include any debt covenant violations as required by GAAP the applicable financial reporting framework(R_PDI_25). Once the footnote disclosure is complete, it is submitted to the Accounting Manager for review. Once approved, the footnote disclosure is submitted to the Financial Reporting department for inclusion in the companys financial statements. At year-end, once the financial statements have been compiled, the Controller performs a review of the financial statements, including all footnote disclosures. This includes an analysis prepared by the Senior Accountant that details capital lease obligations and debt incurred directly through an asset purchase. This analysis is to ensure that the asset purchase is not incorrectly presented as a financing and investing activity versus a noncash transaction (R_PDI_26). The Accounting Manager performs a review of the analysis, as well as the cash flow statement, as part of the close process (C_PDI_13). As part of the overall review of the financial statements and footnote disclosures, the Controller checks references to supporting documents (which includes the Debt Classification Analysis). (C_PDI_1). Capital lease obligations or debt incurred directly through an asset purchase is incorrectly presented as a financing and investing activity versus a noncash transaction. Interest Other Debts Interest payments on debts, bonds, lease, and rentals are computed by the Senior Accountant and sent to the Accounting Manager for approval (R_DBT_INE_1, C_DBT_INE_1). After approval, the schedule is sent to the VP, Corporate Accounting for review to ensure completeness (R_DBT_INE_2, C_DBT_INE_2). Journal entries are passed by the Senior Accountant before posting journal entries are approved by Manager, Corporate Accounting. After the passing of entries in the system, wire payments are made by the Analyst, Treasury each time the interest is due. The Senior Accountant, Corporate Accounting reconciles interest accounts on monthly basis along with the interest accrued calculations with the GL Account (R_DBT_INE_5, C_DBT_INE_4). The VP Accounts, Corporate Accounting approves reconciliation and ensure balances are appropriate (R_DBT_INE_3, C_DBT_INE_1). While, reviewing comparison is performed between Interests account and Budge. VP Accounts also ensure interest is recorded in appropriate period and any unusual transactions are iInvestigated (R_DBT_INE_4, C_DBT_INE_3). IPE: DBT_IPE_1 Debt Issuance Proposal DBT_IPE_2 Master Debt Schedule DBT_IPE_3 Journal Entry Binder

Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.

DBT_IPE_4 Debt Relief Form DBT_IPE_5 TMAS Reconciliation Report DBT_IPE_6 Debt Classification Analysis DBT_IPE_7 Debt Footnote Support DBT_IPE_8 Capital Lease Analysis DBT_IPE_9 Debt Interest schedule

Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.