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What is long-term debt?

Author:
Harold Averkamp, CPA, MBA

Definition of Long-term Debt

In accounting, long-term debt generally refers to a company’s loans and other liabilities that will not become due within one year of the balance sheet date. (The amount that will be due within one year is reported on the balance sheet as a current liability.)

Example of Long-term Debt

Let’s assume that a company has a mortgage loan with a principal balance of $200,000 with 120 monthly payments remaining. The loan payments due in the next 12 months include $12,000 of principal payments. The $200,000 of debt should be reported on the company’s balance sheet as follows:

  • $188,000 as a long-term or noncurrent liability such as noncurrent portion of mortgage loan
  • $12,000 as a current liability such as current portion of mortgage loan

When the word “debt” is used to mean “liabilities” (as is done in financial ratios) then other examples will include vehicle loans, bonds payable, capital lease obligations, pension and other post-retirement benefit obligations, and deferred income taxes.

Some long-term debt that will be due within one year can continue to be reported as a noncurrent liability if the company intends to refinance the debt and can prove it will be done within 12 months without reducing its working capital.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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