Current Portion of Long-Term Debt (CPLTD)
What Is the Current Portion of Long-Term Debt?
The current portion of long-term debt (CPLTD) alludes to the section of a company's balance sheet that records the total amount of long-term debt that must be paid inside the current year. For instance, on the off chance that a company owes a total of $100,000, and $20,000 of it is due and must be paid off in the current year, it records $80,000 as long-term debt and $20,000 as CPLTD.
Current Portion of Long-Term Debt Explained
While perusing a company's balance sheet, creditors and [investors](/financial backer) utilize the current portion of long-term debt (CPLTD) figure to determine on the off chance that a company has adequate liquidity to pay off its short-term obligations. Interested parties compare this amount to the company's current cash and cash equivalents to measure whether the company is really able to make its payments surprisingly. A company with a high amount in its CPLTD and a generally small cash position has a higher risk of default, or not paying back its debts on time. Accordingly, lenders might choose not to offer the company more credit, and investors might sell their shares.
Current Debt versus Long-Term Debt
Businesses group their debts, otherwise called liabilities, as current or long term. Current liabilities are those a company causes and pays inside the current year, for example, rent payments, outstanding solicitations to sellers, payroll costs, utility bills, and other operating expenses. Long-term liabilities incorporate loans or other financial obligations that have a repayment schedule enduring north of a year. In the end, as the payments on long-term debts come due inside the next one-year time span, these debts become current debts, and the company records them as the CPLTD.
Special Considerations
If a business has any desire to keep its debts classified as long term, it can roll forward its debts into loans with balloon payments or instruments with later maturity dates. For instance, expect a company has a long-term debt of $100,000. Its CPLTD is projected to be $10,000 for the next year. Nonetheless, to try not to record this amount as a current liability on its balance sheet, the business can apply for a new line of credit with a lower interest rate and a balloon payment due in two years. Therefore, its CPLTD won't increase.
In different cases, long-term debts may automatically change over completely to CPLTD. For instance, on the off chance that a company breaks a covenant on its loan, the lender might reserve the right to call the whole loan due. In this case, the amount due automatically changes over from long-term debt to CPLTD.
Recording the CPLTD
To illustrate how businesses record long-term debts, envision a business takes out a $100,000 loan, payable north of a five-year period. It records a $100,000 credit under the accounts payable portion of its long-term debts, and it makes a $100,000 debit to cash to balance the books. Toward the beginning of each tax year, the company moves the portion of the loan due that year to the current liabilities section of the company's balance sheet.
For instance, assuming the company needs to pay $20,000 in payments for the year, the long-term debt amount diminishes, and the CPLTD amount increases on the balance sheet for that amount. As the company pays down the debt every month, it diminishes CPLTD with a debit and diminishes cash with a credit.
Highlights
- The CPLTD is separated out on the company's balance sheet since it should be paid by highly liquid assets, like cash.
- The CPLTD is an important device for creditors and investors to use to distinguish on the off chance that a company can pay off its short-term obligations surprisingly.
- The current portion of long-term debt (CPLTD) is the portion of a long-term liability that is coming due inside the next twelve months.
