Notes Payable, Long-Term Debt, And Interest Narrative

 

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)

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  Issuance

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  Interest

  Redemption Reconciliation o  o

  Debt Footnote Disclosure and Financial Statement Review

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  Interest Other Debts

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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 institution (Notes Payable or ABL). This proposal is prepared by the Treasury Analyst and Treasury Manager. Manager. Once approved, the Treasury Analyst will enterTMAS the details of theand debt to be assumed the Treasury Management Application System (TMAS). calculates projects the future futureinto cash flows and up updates dates a Master Debt Schedule with the new debt details. The information produced by TMAS is th then en used to book the entry to recognize the newly assumed debt. The Treasury Analyst wi will ll prepare the entry and submit submit to the Treasury Manager for review. Once approved, the Treasury M Manager anager will book the entry to 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. approval. Once approved, the journal entries a are re 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 debt process, the Board process redeem bonds or repayAnalyst notes payable/ABLs prior to their term requiresof the approval of the ofto Directors. The Treasury a and nd Treasury Manager will complete a Debt Relief Form, For m, which includes a repayment schedule, interest/debt re repayment payment 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 c ancellation (as approved by the Board of Directors). Once completed, tthe he Treasury Analyst will prepare the required journal entries entr ies 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 le dger   (R_DBT_4 , C_DBT_2). Additionally, the Treasury Analyst will reconcile the bank statements to the general ledger to ensure e nsure 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, theinstitution. Treasury Analyst andaTreasury Manager will collect all information requested by the financial Annually, compliance certificate is certified by the Board of 

 Note: This document is an illustrativ illustrativee example and is ffor or information and education purposes only. It is not a substitu substitute te for   professional advice, services, services, nor an entity entity’s ’s own internal control proce procedures dures and should not be used or relied 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 agreeme nts 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 company’s debt for classification purposes. The analysis, called the Debt Classification Analys Analysis, is, organizes the debt based on payment due date as to determine whether the debt should be classified as “current” “ 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 per period iod 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 the Accounting Man Manager ager will to the Accounting Manager for review (C_PDI_2). During the review, the reconcile the details in the analysis to each eac h 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 company’s 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, re payment, interest rate, and conversion option) and conditions related to individual debt components (R_PDI_23 ). For each of the com company’s pany’s debt  obligations, the Senior Accountant will detail the interest expense, effective interest rate, and estimated Accountant tant will include any amortization of debt discount are disclosed (R_PDI_24 ). Finally, the Senior Accoun 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 company’s financial statements. statements.  At year-end, once the financial statements have been compiled, the Controller performs a review of the financial statements, including all footnote disclosures. 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, st atement, 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 b by y the Analyst, Treasury each time the t he 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 reco nciliation 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 iInvestigated (R_DBT_INE_4, C_DBT_INE_3). IPE:

  DBT_IPE_1 — Debt Issuance Proposal

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  DBT_IPE_2 — Master Debt Schedule

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  DBT_IPE_3 — Journal Entry Binder

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 Note: This document is an illustrativ illustrativee example and is ffor or information and education purposes only. It is not a substitu substitute te for   professional advice, services, services, nor an entity entity’s ’s own internal control proce procedures dures and should not be used or relied relied on as such. 

 

  DBT_IPE_4 — Debt Relief Form

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  DBT_IPE_5 — TMAS Reconciliation Report

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  DBT_IPE_6 — Debt Classification Analysis

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  DBT_IPE_7 — Debt Footnote Support

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  DBT_IPE_8 — Capital Lease Analysis

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  DBT_IPE_9 — Debt Interest schedule

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 Note: This document is an illustrativ illustrativee example and is ffor or information and education purposes only. It is not a substitu substitute te for   professional advice, services, services, nor an entity entity’s ’s own internal control proce procedures dures and should not be used or relied relied on as such.