What Is Debt Retirement?

A corporate finance specialist reviews operating data and advises senior management on asset-selection strategies in the short term and long term. A firm often retires, or pays off, debt to invest in other assets.

Debt Definition

A debt is a liability or loan that a corporation must repay. Examples include accounts payable, loan interest and bonds payable.

Debt Retirement Defined

In finance parlance, retiring debt means repaying the loan principal and accrued interest. Accrued interest is the amount of interest computed during the loan term.

Reasons for Debt Retirement

A company may retire debt if economic conditions are favorable and funding costs are low. For instance, a borrower may repay a loan if current interest rates are lower than the interest rate on an existing loan.

Expert Help

A company may hire a financial specialist, such as an investment banker or a chartered financial analyst, to help formulate debt retirement strategies.

Accounting for Debt Retirement

To record a debt retirement transaction, an accountant debits the debt payable account and credits the cash account. In accounting terminology, crediting an asset account, such as cash, means reducing its balance.

References

• The Free Dictionary: Debt Retirement
• Washington State Legislature: Retirement of Bonds