What is short-term debt’
Short-term debt-this account in the current portion of the liabilities in the balance sheet of the company. This account consists of any debt incurred by the company which, in the course of one year. Debt by the obligation usually consists of short-term Bank loans taken by the company, or commercial paper, among other types.
Short-term debt, also known as short-term or ongoing obligation is any financial obligation that is or during the 12-month period or during the current financial year. The cost of short-term debt-account is very important in determining enterprise performance. If the account is more than the cash and cash equivalents, this suggests that the company is in poor financial condition and do not have enough money to pay off their short term debts.
In addition to short-term receivables during the year, may be part of long-term debt, which is also included in this account. This part applies to payments to be made on any long-term debt during the year.
Penetration of short-term debt’
Types of short-term debt
The first and often the most common, type is short-term debt short-term Bank loan. These types of loans appear on the balance sheet when the company needs quick financing for working capital. It is also known as “connecting the Bank” as a short-term loan often used to fill the gap between more financing options.
Another common type of short-term debt owed by the company with suppliers. This account shall be used to track all due payments in connection with external suppliers and stakeholders. If a company purchases equipment for $10,000 for a short-term loan needs to be paid within 30 days, $10,000 is classified among payables.
Commercial paper is unsecured short-term debt instruments issued by a Corporation, typically for financing accounts receivable, inventories and meet short-term obligations such as the payment of salaries. Terms on commercial paper rarely range more than 270 days. Commercial paper usually is issued at a discount from face value and reflects the prevailing levels of market interest rates, and this is useful because these commitments need not be registered with the sec.
Sometimes, depending on the way in which workers receive wages from their employers, wages can be considered short-term debt. For example, if the employee is paid the 15th of the month for work performed during the previous period, this will create a short-term debt accounts payable wages while he or she is paid for 15.
Lease payments are also sometimes can be ordered as short-term debt. Most leases are not considered long-term debt, but sometimes there are contracts that need to be paid within one year. If, for example, signs a six-month lease for office space, it will be considered short-term debt.
Finally, taxes are sometimes classified as short-term debt. If the company is required quarterly taxes that must be paid, it can be considered as current liabilities and classified as short-term debt.