What Is Current Debt?
Current debt is any type of outstanding debt that is due for payment in full at some point in one calendar year from the current date. Current debt appears as a balance sheet item in the financial accounting records of a business, and is usually classified as part of the outstanding Payables of the company. The appearance on the monthly balance sheet helps to track any changes in current debt, including the retirement of all or a portion of a given debt, as well as the inclusion of new debts that are expected to be paid in full by the end of one year.
Sometimes known as current liabilities, current debt can take several different forms. Perhaps the most common form includes invoices for goods and services received from a vendor. Unless the vendor account is structured to allow for a revolving line of credit, there is a good chance that an invoice was issued that includes terms of payment. The terms of payment may be anywhere from fifteen to sixty days from the invoice date, based on any contracts or other documents that establish payment terms between the buyer and the vendor. In any case, the invoice is expected to be paid in full before one calendar year has elapsed, and thus qualifies as current debt.
Tracking the level of debt is extremely important to the financial well-being of any company. By having a solid understanding of how much the company currently owes, and how much of that debt is due within the next twelve months, it is easier to determine if the revenue currently generated by the company will cover all operational expenses and still allow for the discharge of the debt in a timely manner. When there are indications that the current debt to income ratio is out of balance, the company can take steps to decrease expenses in ways that do not impact the current flow of revenue into the company, and hopefully restore a balance.
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