Skip to main content

Chapter 13: Long-Term Liabilities

Chapter Introduction​

Marie's restaurant expansion plans require significant financing. "I need to borrow money to buy the new equipment and renovate," she tells Monsieur Schneider. "But I'm not sure how to account for a loan. Is it different from accounts payable?"

Monsieur Schneider explains that long-term liabilities—obligations due beyond one year—require different accounting treatment than current liabilities. "Long-term loans, bonds, and other long-term obligations must be properly recorded, and interest must be accrued over time. In Luxembourg, there are specific PCN accounts and requirements for long-term debt."

Long-term liabilities are obligations that:

  • Are due beyond one year (or operating cycle if longer)
  • Include long-term loans, bonds, mortgages, and other long-term debt
  • Require proper interest accounting
  • Affect financial leverage and solvency

In Luxembourg, long-term liabilities are important for SMEs because:

  • Many businesses need financing for growth
  • Loans are common for equipment and property purchases
  • Proper accounting ensures accurate financial statements
  • PCN has specific classifications (Class 1 - Financement Permanent)
  • Interest expense affects taxable income

This chapter teaches you about long-term liabilities, how to price them, how to account for interest using the effective-interest method, and how to record bonds and loans. You'll also learn about Luxembourg-specific requirements including PCN Class 1 accounts and loan accounting.

By the end of this chapter, you'll understand how to properly account for long-term liabilities and comply with Luxembourg requirements—just like Marie will learn to do for her restaurant's expansion financing.

Why It Matters​

Long-term liabilities represent significant obligations that affect a business's financial structure and cash flow. Proper accounting is essential because:

  • Financial Structure: Long-term debt affects leverage and solvency
  • Cash Flow: Principal and interest payments must be planned
  • Interest Expense: Must be properly accrued and recorded
  • Financial Statements: Long-term liabilities affect balance sheet and income statement
  • Compliance: Must follow accounting standards and Luxembourg regulations

Luxembourg-Specific Importance:

  • Many SMEs use long-term financing
  • PCN requires proper classification (Class 1)
  • Interest expense affects taxes
  • Must maintain proper documentation
  • Must comply with loan agreements

Understanding long-term liability accounting helps you:

  • Make informed financing decisions
  • Account for loans and bonds correctly
  • Calculate interest expense properly
  • Prepare accurate financial statements
  • Comply with Luxembourg regulations

Learning Objectives​

By the end of this chapter, you should be able to:

  1. Explain the pricing of long-term liabilities
  2. Compute amortization of long-term liabilities using the effective-interest method
  3. Prepare journal entries to reflect the life cycle of bonds
  4. Understand special topics related to long-term liabilities
  5. Explain Luxembourg long-term debt (PCN Class 1)
  6. Understand Luxembourg loan accounting and interest expense