A debt is money or a thing given for a while that must be returned. Every debt has two sides: the lender: the person who gave the money or thing for a while; the borrower: the person who took it and will return it later. The borrower is also called a debtor. Taking something from a shop now and paying for it later is called buying on credit. When buying on credit, the shopkeeper is the lender and the buyer is the debtor.

Debt: lending and borrowing

Q: What is written in the credit notebook?

For example (the figures are hypothetical), at the start of the month Tohir aka's notebook looked like this: Ten days later Baxtiyor aka brought 40 000 soum. Now his debt is 140 000 − 40 000 = 100 000 soum. And the total debt in the notebook is 85 000 + 100 000 + 60 000 = 245 000 soum. Without the notebook, Tohir aka could not remember who owes how much. So every debt should be written down: who, when, how much (practical advice).

Q: What should you think about before borrowing?

One simple question: "From what money will I pay this back?" You pay a debt back from future income. If the income does not come, the debt stays, and the interest keeps growing.

In Tohir aka's grocery shop in the neighbourhood, a thick notebook lies under the counter. Everyone in the neighbourhood calls it the "credit notebook". The most important things about debt are written in it.

What is a debt?

A debt is money or a thing given for a while that must be returned.

Every debt has two sides:

the lender: the person who gave the money or thing for a while;
the borrower: the person who took it and will return it later. The borrower is also called a debtor.

Taking something from a shop now and paying for it later is called buying on credit. When buying on credit, the shopkeeper is the lender and the buyer is the debtor.

What is written in the credit notebook?

For example (the figures are hypothetical), at the start of the month Tohir aka's notebook looked like this:

Who	What they took	Debt, soum
Zuhra opa	flour and oil	85 000
Baxtiyor aka	rice and tea	140 000
Muhabbat xola	sugar and soap	60 000
Total		285 000

Ten days later Baxtiyor aka brought 40 000 soum. Now his debt is 140 000 − 40 000 = 100 000 soum. And the total debt in the notebook is 85 000 + 100 000 + 60 000 = 245 000 soum.

Without the notebook, Tohir aka could not remember who owes how much. So every debt should be written down: who, when, how much (practical advice).

Can the shopkeeper be a debtor too?

Yes. Tohir aka took flour and sugar from a wholesaler and agreed to pay two weeks later: 1 500 000 soum. This time he is the debtor, and the wholesaler is the lender.

So in one shop both sides of debt exist at the same time:

debt that should come back to us: the neighbours will return 245 000 soum;
debt that we must pay back: Tohir aka will return 1 500 000 soum.

In accounting the first is called accounts receivable, and the second accounts payable. These words are in our glossary.

Is there a charge for a loan?

In the neighbourhood, neighbours usually lend to each other without any charge. But when a bank lends money, it takes an extra charge on top. This charge is called interest.

For example (the figures are hypothetical), Tohir aka borrowed 10 000 000 soum from a bank to buy a fridge for the shop. Over one year he returns 11 500 000 soum in total to the bank.

Part	Soum
the borrowed money itself	10 000 000
charge paid on top (interest)	1 500 000
Total returned	11 500 000

Remember the fifth lesson: the borrowed 10 000 000 soum is not income, and paying it back is not an expense. For Tohir aka only the 1 500 000 soum paid on top is an expense.

What should you think about before borrowing?

One simple question: "From what money will I pay this back?" You pay a debt back from future income. If the income does not come, the debt stays, and the interest keeps growing.

In the next lesson

In the ninth Basics lesson we will look at the opposite side of debt: not spending money today but putting it aside for later, that is, savings.

Test yourself

5 questions on this topic: pick an option or reveal the answer.

"Nurafshon plastik" LLC bought the shares of another company and paid with finished products of its own production (hypothetical example). Under row 1 of the table to paragraph 244 of NAS No. 21, which journal entry records the purchase of shares by transferring products?

A property owner rents out a building and expects to receive 3 000 000 soum of net income every year for an indefinitely long time. The required rate of return is 12% per year. What is the present value of the perpetuity (annual payment / rate)?

A furniture factory's capital: equity of 60 mln soum (required rate of return 20%) and debt of 40 mln soum (rate 15%). Ignoring the tax effect, what is the weighted average cost of capital (WACC)?

A company's total liabilities are 400 mln soums and its equity is 500 mln soums. What is the debt-to-equity ratio (liabilities / equity)?

The annual net profit of a joint-stock company was 90 mln soum, of which 36 mln soum was allocated to dividends (hypothetical example). What is the dividend payout ratio (dividends / net profit × 100%) and what does it mean?

Answered: 0 / 50 of 5 correct

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