What Is the Current Portion of Long-Term Debt?

The current portion of long-term debt (CPLTD) refers to the section of a company's 澳洲幸运5开奖号码历史查询:balance sheet that records the total amount of 澳洲幸运5开奖号码历史查询:long-term debt that must be paid within the current year. For example, if a company owes a total of $100,000, and $20,000 of it is due and must be paid off in the current year, it records $80,000 as long-term debওt and $20,000 as CPLTD.

Current Portion of Long-Term Debt Explained

When reading a company's balance sheet, 澳洲幸运5开奖号码历史查询:creditors and 澳洲幸运5开奖号码历史查询:investors use the current portion of long-term debt (CPLTD) figure to determine if a company has sufficient 澳洲幸运5开奖号码历史查询:liquidity to pay off its short-term obligations. Interested parties compare this amount to the company's current 澳洲幸运5开奖号码历史查询:cash and cash equivalents to measure whether the company is actually able to make its payments as they come due. A company with a high amount in its CPLTD and a relatively small 澳洲幸运5开奖号码历史查询:cash position has a higher 澳洲幸运5开奖号码历史查询:risk of default, or not paying back its debts on time. As a 🔴result, lenders may decide not to offer the company more credit, and investors may sell their shares.

Current Debt vs. Long-Term Debt

Businesses classify their debts, also known as liabilities, as current or long term. 澳洲幸运5开奖号码历史查询:Current liabilities are those a company incurs and pays within the current year, such as rent payments, outstanding invoices to vendors, payroll costs, utility bills, and other operating expenses. 澳洲幸运5开奖号码历史查询:Long-term liabilities include loans or other financial obligations that have a repayment schedule lasting over a year. Eventually, 澳洲幸运5开奖号码历史查询:as the payments on𒉰 long-tꦏerm debts come due within the ne𓂃xt one-year time frame, these debts become𝓡 current debts, and the company records them as the CPLTD.

Special Considerations

If a business wants to keep its debts classified as long term, it can roll forward its debts into loans with 澳洲幸运5开奖号码历史查询:balloon payments or instruments with later 澳洲幸运5开奖号码历史查询:maturity dates. For example, assume a company has a long-term debt of $100,000. Its CPLTD is projected to be $10,000 for the next year. However, to avoid recording this amount as a current liability on its balance sheet, the business can take out a loan with a lower interest rate 🍒and a balloon payment due in two y꧋ears. As a result, its CPLTD will not increase.

In other cases, long-term debts may automatically convert to CPLTD. For example, if a company breaks a covenant on its loan, the lender may reserve the right to call the entire loan due. In this case, the amoꦫunt due automatically converts from long-term debt to CPLTD.

Recording the CPLTD

To illustrate how businesses record long-term debts, imagine a business takes out a $100,000 loan, payable over a five-year period. It records a $100,000 credit under the 澳洲幸运5开奖号码历史查询:accounts payable portion of its long🤡-term debts, and it makes a $100,000 debit to cash to balance the books. At the beginning of each tax year, the company moves the portion of the loan due that year to the current liabilit🍷ies section of the company's balance sheet.

For example, i🗹f the company has to pay $20,000 in payments for the year, the long-term debt amount decreases, and the CPLTD amount increases on the balance sheet for that amount. As the company pays down the debt each month, it decrea෴ses CPLTD with a debit and decreases cash with a credit.