Short Term Debt

An account reflected on a company’s balance sheet as a current liability, consisting of debt that is due within one year (either the current fiscal year or a 12-month period generally). Also commonly referred to as short-term liabilities or current liabilities.

The most common type of short-term debt is a short-term bank loan. A company may borrow the money for immediate financial needs as a stopgap while it waits for funds from long-term financing options. Other types of debt classified as short-term debt could include employee salaries and wages, accounts payable and even quarterly taxes.

Companies obviously care about short-term debt because it is money that needs to be paid in the near future. But why would anyone else be interested in a company’s short-term debt? One answer is that it can be a metric of company performance. If the company doesn’t have enough readily available assets to pay its short-term debts, it could be a sign of financial trouble ahead.

 

EXAMPLE:

A company took out a bank loan of $40,000 dollars to start a new project and purchased a new piece of equipment for $20,000. The bank loan needs to be paid off in a year and the equipment must be paid for within 30 days. The company’s current balance sheet shows short-term debt of $60,000.