What Is Short-Term Debt?

Short-term debt, also called 澳洲幸运5开奖号码历史查询:current liabilities, is a firm's financial obligations that are expected to be paid off within a year. It is listed under the current liabilities portion of the total liabilities section of a company's 澳洲幸运5开奖号码历史查询:balance sheet.

Understanding Short-Term Debt

There are usually two types of debt, or liabilities🏅, that a company accrues—financing and operating. The former is the result of actions undertaken to raise funding to grow the business, while the latter is the byproduct of obligations arising from normal business operations.

Financing debt is normally considered to be 澳洲幸运5开奖号码历史查询:long-term debt in that it is has a maturity date longer than♉ 12 months and is usually listed after the current liabilities portion in the🤪 total liabilities section of the balance sheet.

Operating debt arises from the primary activities that are required to run a business, such as accounts payable, and is expected to be resolved within 12 months, or within the current operating cycle, of its accrual. This is known as short-term debt and is usually made up of short-term bank loans taken out, or 澳洲幸运5开奖号码历史查询:commercial paper issued, by a company,

The value of the short-term debt account is very important when determining a company's performance. Simply put, the higher the 澳洲幸运5开奖号码历史查询:debt to equity ratio, the greater the concern about company liquidity. If the account is larger than the company's 澳洲幸运5开奖号码历史查询:cash and cash equivalents, this suggests that the company may be in poor 澳洲幸运5开奖号码历史查询:financial health and 澳洲幸运5开奖号码历史查询:does not have enough cash to pay off its impending obligations.

The most common measure of 澳洲幸运5开奖号码历史查询:short-term liquidity is the 澳洲幸运5开奖号码历史查询:quick ratio which is integral in determining a company's credit raꦛting that ultimately affects that company's ability to procure financing.

Quick ratio = (current assets - inventory) / current liabilities

Types of Short-Term Debt

The first, and often the most common, type of short-term debt is a company's 澳洲幸运5开奖号码历史查询:short-term bank loans. These types of loans arise on a business's balance sheet when the company needs quick financing in order to fund 澳洲幸运5开奖号码历史查询:working capital needs. It's also known as a "bank plug," because a short-term loan is often used to 澳洲幸运5开奖号码历史查询:fill a gap between longer financing options.

Another common type of short-term debt is a company's accounts payable. This liabilities account is used to track all outstanding payments due to outside vendors and stakeholders. If a company purchases a piece of machinery for $10,000 on short-term credit, to be paid within 30 days, the $10,000 is categorized among accounts payable.

Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities such as payroll. Maturities on commercial paper rarely range longer than 270 days. Commercial paper is usually 澳洲幸运5开奖号码历史查询:issued at a discount from face valu🐻e and reflects prevailing market interest rates, and is useful because these liabilities do not need to be registered with the SEC.

Sometimes, depending on the way in which employers pay their employees, salaries and wages may be considered short-term debt. If, for example, an employee is paid on the 15th of the month for work performed in the previous period,💖 it would create a short-term debt account for the owed wages, until they are paid on the 15th.

Lease payments can also sometimes be booked as short-term debt. M🙈ost leases are consi𒊎dered long-term debt, but there are leases that are expected to be paid off within one year. If a company, for example, signs a six-month lease on an office space, it would be considered short-term debt.

Finally, taxes are sometimes categoriz🍰ed as short-term debt. If a com🥂pany owes quarterly taxes that have yet to be paid, it could be considered a short-term liability and be categorized as short-term debt.