Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 1 - Introduction to Financial Statements - Self-Test Questions - Page 26: 1

Answer

A business entity has several ways of raising its finances. One of the ways is the issuance of debentures or creditorship securities. When a company lends out money to others, the borrowing entity signs a document to acknowledge the debt. Debentures are components of the capital that the company is borrowed, whereas the entities or individuals indented to the company are the creditors. Creditorship is therefore the state of being a creditor. A company which has issued several debts has a low gearing. There should be a balance between the ownership and the creditorship capital, where the focus should be to raise the ownership capital.

Work Step by Step

Creditorship may be described as the state of being a creditor. A creditor is an act and not any form of business but it is the scenario when one is owed money. Being owed money does not constitute any type of business but may be termed as a transactional situation.
This answer is currently locked

Someone from the community is currently working feverishly to complete this textbook answer. Don’t worry, it shouldn’t be long.