What is current portion of long-term debt?
The slice of loan principal due within the next twelve months. It sits with other amounts due this year, not with the rest of the note.
Definition
The current portion of long-term debt is the principal still owed on a longer loan that comes due in the next twelve months. On the books, this is a current liability, not a new loan and not the interest cost.
It is a reclass of principal that already sits on the note. The same dollars leave the longer-term grouping and land here until they are paid.
Cash-basis books may still show a bank loan if the cash arrived. Accrual books split that remaining principal into the slice due this year and the slice due later.
This line is remaining principal due soon. Interest hits the P&L as you use the money.
Where it shows up
Balance Sheet: Located in the current liabilities section.
P&L: Related to the same interest as the longer-term note.
Cash flow: Decreases in this account, reported cash from financing activities decreases.
See also: Notes Payable · Current Liabilities · Loan Amortization Schedule
When you look at your Balance Sheet, this line sits in the current liabilities section. It is next year's principal on notes that otherwise live with long-term liabilities.
When the total is high, it usually means a large note is rolling into the next year. When the total is low, it usually means little principal is due soon, or most of the balance is still longer-term.
The profit and loss statement does not list this account as a line. Interest on the same note is the related charge each period.
On the Statement of Cash Flows, paying this slice is a financing outflow. This account falls, and reported cash from financing activities falls with it.
How it works
The amount gets here when a longer note already exists and twelve months of principal come due. You do not borrow again to create this line.
You debit the longer-term Notes Payable and credit this account for the slice. Total amounts owed stay the same that day.
A Debt Schedule and a Loan Amortization Schedule tell you how much principal falls in the next year. Those worksheets are how you size the reclass.
Each regular installment then reduces this line. Cash falls, this account falls, and the Principal Payment is what dropped the owe.
After you pay, you look ahead again. The next twelve months of remaining principal move in from the longer-term note.
Interest is not this account. You record interest as it builds, and you pay it on the lender's schedule.
The reclass is often an adjusting journal entry at period end. Anyone reading the statements should see what is due this year apart from what is due later.
When the note is paid off, this line should sit at zero for that loan. An old balance that still appears usually means a payment was posted to the wrong account.
Example
A brewery borrows $60,000 from the bank for a new fermenter, due over five years. The cash landed when the note was booked, and the full $60,000 sat with the longer-term amounts owed.
At year-end, $12,000 of principal is due within twelve months. The brewery reclassifies that slice:
Debit: Notes payable $12,000
Credit: Current portion of long-term debt $12,000
The longer-term note falls by $12,000, and this current line rises by $12,000. Total amounts owed stay $60,000.
The Income Statement has not taken a $12,000 expense. This was a split of principal already on the books.
Later the brewery pays $1,000 of that current principal:
Debit: Current portion of long-term debt $1,000
Credit: Cash $1,000
This account falls by $1,000, and cash falls by $1,000. That payment is not a P&L cost.
Common mix-ups
This line is not new borrowing. The cash already arrived when the longer note was booked; this is only a reclass of the next twelve months of principal.
This line is not interest. Interest is the cost of using the money; this account is remaining principal due soon.
This line is not the whole note. The rest of the principal stays with long-term liabilities until it too comes due within a year.
Related terms
- Notes Payable: Formal loan balances owed to a bank or other lender.
- Long-Term Liabilities: Obligations that come due more than a year out.
- Current Liabilities: Obligations due within the next twelve months.
- Loan Amortization Schedule: The payment-by-payment breakdown of a loan into principal and interest.
- Principal Payment: The portion of a loan payment that reduces the balance owed.
- Debt Schedule: A supporting schedule tracking each loan's balance, payments, rate, and maturity.
- Current Ratio: Current assets divided by current liabilities.
- Adjusting Journal Entry: An entry made at period end to record accruals, deferrals, and corrections.