What is the current portion of long-term debt?

What is the current portion of long-term debt?

• A. The total long-term debt
• B. The amount of loan repayments due within the next 12 months
• C. Interest payable
• D. The current portion of short-term debt

Answer: (B)

The part being tested is how debt is classified on the balance sheet. The current portion of long-term debt is the amount of principal that must be repaid within the next 12 months from the balance sheet date. This portion is shown as a current liability, while the remainder of the long-term debt stays classified as non-current. This isn’t the total long-term debt, which includes amounts due beyond one year. It isn’t interest payable, which relates to the cost of borrowing, not the principal repayments. And it isn’t the current portion of short-term debt, which would be the portion of short-term borrowings due within the year but classified under short-term liabilities. In practice, you determine the current portion by reviewing the debt amortization schedule and summing the principal repayments due in the next 12 months. This item directly affects liquidity measurements and cash flow planning.

The part being tested is how debt is classified on the balance sheet. The current portion of long-term debt is the amount of principal that must be repaid within the next 12 months from the balance sheet date. This portion is shown as a current liability, while the remainder of the long-term debt stays classified as non-current.

This isn’t the total long-term debt, which includes amounts due beyond one year. It isn’t interest payable, which relates to the cost of borrowing, not the principal repayments. And it isn’t the current portion of short-term debt, which would be the portion of short-term borrowings due within the year but classified under short-term liabilities.

In practice, you determine the current portion by reviewing the debt amortization schedule and summing the principal repayments due in the next 12 months. This item directly affects liquidity measurements and cash flow planning.