Current Maturities of Long-Term Borrowings, often referred to as current portion of long-term debt or short-term debt, represents the portion of long-term loans or liabilities that are due for repayment within the next year. It is a line item on the balance sheet and is classified as a current liability.
Current Maturities of Long-Term Borrowings refers to the portion of long-term debt that is expected to be paid off within the next 12 months.
It includes any portion of a long-term borrowing arrangement, such as a loan or bond, that is scheduled for repayment in the upcoming year.
It is classified as a current liability on the balance sheet because it represents a financial obligation that the company expects to settle in the short term.
For example, if a company has a long-term loan of $100,000, and $20,000 of that loan is due for repayment within the next year, then the Current Maturities of Long-Term Borrowings would be recorded as $20,000 on the balance sheet.
Impact on Financial Statements:
- On the balance sheet, Current Maturities of Long-Term Borrowings is listed under current liabilities, reducing the company’s working capital (current assets minus current liabilities).
- On the income statement, interest expenses related to the long-term debt may be recorded as an expense.
Renewal or Refinancing:
If the company plans to renew or refinance the debt after the current portion matures, it would still be classified as current if the intent to refinance is not in place before the balance sheet date.
Importance for Financial Planning:
Tracking current maturities of long-term debt is crucial for financial planning. It ensures that the company has sufficient liquidity to meet its short-term obligations.
Impact on Creditworthiness:
Lenders and creditors may assess the ratio of current maturities of long-term debt to current assets to evaluate a company’s ability to meet its short-term obligations. A high ratio may signal financial stress.
Disclosure and Transparency:
Companies are required to disclose the details of their long-term borrowings, including the current portion, in their financial statements. This provides transparency to stakeholders.
It is the responsibility of management to accurately assess and report the current maturities of long-term borrowings. Any uncertainties or potential refinancing arrangements should be disclosed.