Presentation of Short-Term and Long-Term Debt: A Discussion on the Split Method Based on Agreed Repayment Amounts
This article addresses a practical issue faced by a private company regarding the classification of bank loans into short-term and long-term debt in its financial statements. The company, based on the bank's agreed repayment amounts, classifies the entire remaining debt as short-term in the final year of the loan and adjusts the actual amount owed accordingly. The article presents this treatment and invites peers to share different experiences.
We are a private company, and our bank requires us to have an audit, and our financial statements are primarily used by the bank. We have multiple loans with the bank and have just completed a refinancing. According to the loan agreements, we have agreed-upon repayment amounts. Currently, due to ample cash, we are actually paying more than the agreed repayment amounts. In the presentation of the financial statements, I plan to calculate the current portion of the debt based on the agreed repayment amounts required by the bank, until the final year of the loan term, at which point all remaining amounts owed will be treated as current, and then adjusted based on the actual amounts owed. Is this treatment correct? Has anyone adopted a different approach?