Question

Liabilities can be listed as both long-term and short-term, based on the time frame for paying them. You have a notes payable which was issued to purchase inventory and it was issued on 10/15/xx and is for 90 days. Determine how to report this on balance sheet and support your reason for this reporting.

• The company knows they cannot pay this note in 90 days and is working to convert it to be payable over 15 months. Does this change the method you report on the balance sheet? Why or why not?

Answer 1

Current liabilities (short-term liabilities) are liabilities that are due and payable within one year. Non-current liabilities (long-term liabilities) are liabilities that are due after a year or more. Contingent liabilities are liabilities that may or may not arise, depending on a certain event.

Hence when a notes payable is for 90 days it is less than one year and it will be classified under current liabilities in the Balance sheet. . Short term notes payable are classified as current liabilities on a company's balance sheet, which can make the business look less liquid, since more obligations are coming due for payment in the short term.

When a company is sure that it cannot settle its notes before on year it becomes long term liability. Here if notes are converted to be payable after 15 months, then it will be considered as Long term liability. A note payable is classified in the balance sheet as a short-term liability if it is due within the next 12 months, or as a long-term liability if it is due at a later date