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官方开奖结果体彩网:balance sheet that records the total amount of 澳洲幸运5官方开奖结果体彩网:long-term debt that must be paid within the current year. For example, if a company ow✅es 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 debt and $20,000 as CPLTD.

Current Portion of Long-Term Debt Explained

When reading a company's balance sheet, 澳洲幸运5官方开奖结果体彩网:creditors and 澳洲幸运5官方开奖结果体彩网:investors use the current portion of long-term debt (CPLTD) figure to determine if a company has sufficient 澳洲幸运5官方开奖结果体彩网:liquidity to pay off its short-term obligations. Interested parties compare this amount to the company's current 澳洲幸运5官方开奖结果体彩网: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官方开奖结果体彩网:cash position has a higher 澳洲幸运5官方开奖结果体彩网:risk of default, or not paying back ♔its debts on tim🦹e. 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官方开奖结果体彩网: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官方开奖结果体彩网:Long-term liabilities include loans or other financial obligations that have a repayment schedule lasting over a year. Eventually, 澳洲幸运5官方开奖结果体彩网:as the paymen☂tsꦆ on long-term debts come due within the next one-year time frame, these debts become current debts, a🐟nd the compa✃ny 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官方开奖结果体彩网:balloon payments or instruments with later 澳洲幸运5官方开奖结果体彩网: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 sh꧃eet, the business can take out a loan with a lower interest rate and a balloon payment due in two years. 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 ent♛ire loan dꦍue. In this case, the amount 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官方开奖结果体彩网:accounts payable portion of it🌜s 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 liabilities section of the company's baꦑlance sheet.

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