Debt Covenant Compliance

Free CPA FAR (Financial Accounting & Reporting) lesson in Select Balance Sheet Accounts. 20 min read, ~2,996 words.

Covenants come in three types: affirmative (must do), negative (must not do), financial (must hit a ratio). Affirmative and negative breaches occur at the moment of the prohibited or omitted act; financial covenants are tested at measurement dates. Covenant compliance means computing the agreement's defined ratio (leverage, coverage, liquidity, or...