 In this presentation, we will introduce the topic of bonds and notes payable support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. When considering bonds, we usually think of bonds as a form of investment, typically linking them together with stocks and bonds. We're going to invest in stocks and bonds, possibly as part of our 401k plan, part of our retirement strategy. We here are looking at bonds from the other side from the person issuing the bonds, in this case, the corporation. Now bonds can be issued by government agencies or corporations. We're typically focusing here on corporations. How are we going to record the issuance of a bond? Why would we issue a bond? How is a bond used? And the bond is going to be a kind of financing mechanism. So we're trying to generate capital for the business, get money typically into the business for future use. It's going to be similar to a notes table. When we issue the bond, basically the bond is going to have on it the face amount of bond, the interest of the bond, when the bond interest payments will be made and when the principal is due. We'll talk more about the details of the bonds and how to record them. But we want to get an idea of it from the company standpoint, from the issuance of the bond. When learning about bonds, there's a common question and that is why do I need to learn bonds? For example, if we're not in a corporation, if we work at some type of other entity other than a corporation that's not going to issue bonds and we don't have to record the issuance of bonds, why do we need to learn about bonds? Well, one, it helps from the investment standpoint. But two, from a finance standpoint and an accounting standpoint, it's a really huge topic, not just to record the issuance of bonds or to know what they are, but because they're an introduction to time value of money. So we're always going to be going back to bonds. You got to know bonds because they're one of the major tools that we use within finance to introduce the topic of time value of money. Very important topic, both in finance and accounting. When considering bonds, we want to think of it in the options of financing options and the company has different types of financing options. Remember that we're trying here, of course, to generate revenue. That's the goal of any type of business, no matter if we're a company, a sole proprietorship, or a partnership. However, in order to do that, we often need seed money. We need capital. We need some money to start off. We need money to build things, to make things, to innovate so that we can then generate that revenue. And so the question then is, how do we get some of that initial funding? So most of the money that we get from the company, we hope, is going to come from operations. But if we need to get money for some other purpose in order to build, grow research outside of the normal operations, then we have the option of possibly issuing stock or having a notes payable, taking out a loan of some kind, or issuing bonds. Whenever we think about these items, bonds and notes payable here, we want to think of them in comparison to each other, because that gives us an idea of what the characteristics are of each of these types of options and why we would use them. How are we going to see them in contrasting to other types of options that we have? The stock options are going to give an idea that we can issue stock and therefore give some ownership in the company in exchange for money, for capital. Now there's going to be pros and cons. We'll talk about a little bit more on the pros and cons of issuing stock. The stock, of course, is only something that can be done for a corporation. A sole proprietor can't really issue stock. A partnership could get another partner and has some type of options with a limited liability partner, possibly, or a limited partner. But they don't have as easy a time to sell capital investment as stocks because they're all standardized. The downside, of course, is that you're giving away voting power and decision making to some degree when giving away stocks as well as claims to future revenue generation. Then we have the notes payable. Now this is the option that's kind of available to even a sole proprietorship or a partnership, meaning the major type of note is a loan from the bank. No matter what type of business we have, we can try to get a loan to finance the business. There's pros and cons, of course, to the loan. We're going to have interest on it for the con, but the interest is deductible. The major benefit of a loan, of course, is that we don't give out equity interest in the business. We're not giving up voting rights, we're not giving up future revenue, but we're taking out, of course, the obligation of the loan. A bond you can think of as similar in many ways to the loan, except for many times the bond. Instead of going to the bank and asking for the bank to give us money, we're going to go to the public and ask the public to give us money. So we can actually sell a bond to the public. It acts in many ways as a loan does in that we're going to get initial capital investment. We're going to give the bond, which, in essence, a promise to pay something, including principal and interest in some format. So the major difference between these two is that when we think about a loan, a note payable, we typically have to get that from the bank. A company has the ability to issue bonds, which will make it easier to generate, to do typically. It's easier to issue bonds and we have more options, possibly, in terms of who would purchase a bond. And therefore, the corporation, due to being able to sell stocks and issue bonds, has a lot greater potential to be able to generate capital and then be able to use that capital to invest in the business to possibly generate revenue. So we'll go over the pros and cons a little bit more here, focusing in on the bonds. Bonds is usually the new thing for most students. I think it's usually something that's a little bit unusual, a little bit strange. We typically have the idea of what a loan is. And so a note is something that we kind of have an idea of stocks. We've talked about stocks. We'll talk more about stocks in another presentation, but stocks are going to be an ownership interest. But the bonds are typically something that's a little bit more unusual to people. It's really going to be really similar to a note. So the bonds are going to be kind of like a type of note that we're going to issue and why are we going to do it? Because we're going to get money now. We're going to pay back the bond at the maturity date of the bond. And we're going to have some interest obligations in some format, whatever the terms of the bond will be in order to pay those. And so you can see that's pretty similar to a note. One of the major benefits to issuing bonds is there's no loss of ownership control. And note that this is a comparison between issuing stocks. So whenever we list out pros and cons between different financing options, we really have to know all the financing options because they're only pros and cons in relation to what the other financing options are. There's no best financing option. We just need to know what are the related pros and cons and what's best for us. In this case, if we want to keep control of the business and not give away ownership and not give away the potential or the obligation to give future revenues to others through the issuance of common stock, then it would be preferable in that case to issue bonds because we're not giving away any ownership interest, any voting rights or any claims to the future revenue beyond the obligations of paying back the bond. Interest payments are going to be one of the major cons, of course. If we issue stock, we don't have to pay interest payments. We just get the money. We get to invest it. We don't owe anything until we generate revenue and we start to give back in terms of dividends because we're going to owe some of those dividends, of course, to these shareholders. With bonds, however, we know what we owe back. It's set in terms. Here's the money that we owe. Here's the interest of what we owe. It doesn't matter what happens in the future. There's no future obligation to pay our future revenue beyond the obligation that we've put and laid out in terms of the bond. That's going to be the difference. The interest, however, is part of that. We're going to have to pay interest on the bonds. The good side of that is that the interest is deductible. It's a normal business expense. For example, if we were to get 100,000 for the company from stocks, then we would just put that in the business, start doing business, and no problem. However, when we start to generate revenue, some of our revenue then is going to have to go to those stockholders that gave us the money for the business. If we then get 100,000 from bonds, however, then we have to pay not only the 100,000 back, but we've got to pay interest on it, which is not good. But at least we're not having to pay future revenues to the bond holder. We only have to pay the bond back and the interest on it. So although we're going to be paying more for that initial investment, it doesn't give future obligations in terms of revenue generation or voting power within the company when we have the bonds, and those interest payments at least are deductible for tax purposes which could lower or will lower the amount of taxes that is owed. Thank you.