Long Term Vs Short Term Debt
Have you heard of short term debt and long term debt? They are both debt owed by a company, but their classification is important when determining certain financial ratios and for lenders.
Short term debt is due within the next 12 months. Long term debt is due in more than 12 months. A loan may have both short term and long term components. These components are broken out on the balance sheet into current and long term portions. Current debt is another way of saying short term debt. Current debt will be paid with current assets, or assets that are expected to be turned into cash within the next 12 months. If current assets are not sufficient to cover current debt there could be a problem meeting debt obligations within the next 12 months.