Which balance sheet item represents the portion of a loan that must be paid within the next 12 months?

Which balance sheet item represents the portion of a loan that must be paid within the next 12 months?

• A. Total debt
• B. Current portion of long-term debt
• C. Notes payable
• D. Interest payable

Answer: (B)

The amount that must be paid within the next 12 months comes from classifying debt by when it’s due. The current portion of long-term debt is the portion of a long-term loan that matures within the next year, so it’s shown as a current liability on the balance sheet while the remaining balance stays as long-term debt. This is the best answer because it directly reflects near-term cash obligations related to a loan. Total debt would include all principal outstanding, not just what’s due soon. Notes payable could be short-term or long-term, so it isn’t the specific measure of the upcoming year’s principal. Interest payable captures interest accrued, not the principal due, so it isn’t the portion of the loan that must be paid. Example: a 5-year loan of 100,000 with 15,000 due in the next year would show 15,000 as the current portion of long-term debt and 85,000 as long-term debt.

The amount that must be paid within the next 12 months comes from classifying debt by when it’s due. The current portion of long-term debt is the portion of a long-term loan that matures within the next year, so it’s shown as a current liability on the balance sheet while the remaining balance stays as long-term debt.

This is the best answer because it directly reflects near-term cash obligations related to a loan. Total debt would include all principal outstanding, not just what’s due soon. Notes payable could be short-term or long-term, so it isn’t the specific measure of the upcoming year’s principal. Interest payable captures interest accrued, not the principal due, so it isn’t the portion of the loan that must be paid.

Example: a 5-year loan of 100,000 with 15,000 due in the next year would show 15,000 as the current portion of long-term debt and 85,000 as long-term debt.