Short-Term Debt

Loading the player...

What is 'Short-Term Debt'

Short-term debt is an account shown in the current liabilities portion of a company's balance sheet. This account is made up of any debt incurred by a company that is due within one year. The debt in this liabilities account is usually made up of short-term bank loans taken out by a company, among other types.

BREAKING DOWN 'Short-Term Debt'

Short-term debt, also known as short-term liabilities, refers to any financial obligation that is either due within a 12-month period or due within the current fiscal year. The value of the short-term debt account is very important when determining a company's performance. If the account is larger than the company's cash and cash equivalents, this suggests that the company may be in poor financial health and does not have enough cash to pay off its short-term debts.

In addition to any short-term debts due within a year, there may be a portion of long-term debt that is also included in this account. This portion pertains to payments that must be made on any long-term debt throughout the year.

Types of Short-Term Debt

The first, and often the most common, type of short-term debt is a company's short-term bank loans. These types of loans arise on a business' balance sheet when the company needs quick financing in order to fund working capital needs. It's also known as a "bank plug," because a short-term loan is often used to fill a gap between longer financing options.

Another common type of short-term debt is a company's accounts payable. This liabilities account is used to track all outstanding payments due to outside vendors and stakeholders. If a company purchases a piece of machinery for $10,000 on short-term credit, to be paid within 30 days, the $10,000 is categorized as an accounts payable.

Sometimes, depending on the way in which employees are paid by their employers, salaries and wages can be considered short-term debt. If, for example, an employee is paid on the 15th of the month for work performed in the previous period, it would create a short-term debt account for the owed wages, until they are paid on the 15th.

Lease payments can also sometimes be short-term debt. Most leases are considered long-term debt, but there are sometimes leases that are expected to be paid within one year. If a company, for example, signs a six-month lease on an office space, it would be considered short-term debt.

Finally, taxes are sometimes categorized as short-term debt. If a company owes quarterly taxes that have yet to be paid, it could be considered a short-term liability and be categorized as short-term debt.

RELATED TERMS
  1. Net Debt

    A metric that shows a company's overall debt situation by netting ...
  2. Current Liabilities

    A company's debts or obligations that are due within one year. ...
  3. Current Portion Of Long-Term Debt ...

    A portion of the balance sheet that represents the total amount ...
  4. Term Out

    The transfer of debt within a company's balance sheet without ...
  5. Foreign Debt

    An outstanding loan that one country owes to another country ...
  6. Liquidity Ratios

    A class of financial metrics that is used to determine a company's ...
Related Articles
  1. Investing

    What's Short-Term Debt?

    Short-term debt appears on the liabilities portion of a balance sheet. It’s usually comprised of short-term bank loans, including bridge loans and credit card charges. Short-term debt is one ...
  2. Markets

    Understanding Long-Term Debt

    Long-term debt is any debt or liability that is due in more than one year.
  3. Investing

    What's Current Portion of Long-Term Debt?

    The current portion of long-term debt is the part of a company’s long-term debt that must be repaid within the next year.
  4. Investing

    Financial Statements: Long-Term Liabilities

    By David Harper (Contact David)Long-term liabilities are company obligations that extend beyond the current year, or alternately, beyond the current operating cycle. Most commonly, these include ...
  5. Investing

    Understanding Short-Term Investments

    These are investments that have a maturity date of less than one year, or will be liquidated within a year.
  6. Personal Finance

    Best 5 Money-Saving Tips to Get out of Debt

    Understand the different types of debt and the reasons why people get into debt. Learn about five tips to follow to get out of debt.
  7. Retirement

    Why Retirees Are Carrying More Debt Than Ever

    It was recently discovered that as people reach retirement they are carrying more debt than ever before.
  8. Investing

    Understanding Leverage Ratios

    Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. To lower their risk, investors use a variety of leverage ratios - including the debt, ...
  9. Financial Advisor

    The 4 Best Debt Reduction Services

    It can be tricky to find the best debt reduction services for your financial situation. These top 4 debt consolidation firms help make the process easier.
  10. Retirement

    Why a Rise In the National Debt Is Good for You

    In the first quarter of the year, the household national debt for Americans was $129 billion. Yet contrary to popular belief, debt is not always a bad thing.
RELATED FAQS
  1. Does working capital include short-term debt?

    Learn about a company's working capital and how short-term debt is considered part of current liabilities and is included ... Read Answer >>
  2. How do you calculate net debt using Excel?

    Learn about the net debt formula and how to calculate this financial metric using Microsoft Excel, including a brief explanation ... Read Answer >>
  3. On which financial statements does a company report its long-term debt?

    Discover which financial statements are used to report a company’s long-term debt, as well as how a company uses debt to ... Read Answer >>
  4. Why would you look at a company's net debt rather than its gross debt?

    Learn the difference between net debt and gross debt, how to calculate debt using a company's financial statements and why ... Read Answer >>
  5. Which financial instruments have par values?

    Understand the difference between short-term investments and marketable equity securities, and learn the importance of short-term ... Read Answer >>
  6. What's the difference between debt consolidation and debt management or debt settlement?

    Learn about different ways of handling debt when you become overwhelmed, including debt consolidation, debt management and ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center