A lot of confusion can arise with this balance sheet account. After all, how can something be both long and short? Despite appearances, however, this concept is not that complex. The short/current long-term debt account on the balance sheet simply shows the portion of long-term debt that the company must pay in the next 12 months.
It is important to understand that the current liability account or short-term debt entry is for debt that is to be paid off within the next 12 months, including short-term bank loans and accounts payable. in some cases, the short-term liability may be due to be paid within the current fiscal year. If the account is larger than the company's current cash and cash equivalents, it could be a sign that the company could be in poor financial health as it has insufficient cash to repay its short-term debts.
There may also be a portion of long-tern debt shown in the short-term debt account. This may include any repayments due on long-term debts in addition to current short-term liabilities.
Any debt that is due to be paid off at some point after the next 12 months is held in the long-term debt account. These types of debt might include financing or leasing obligations. Due to the structure of some corporate debt (both bonds and notes), companies will often have to pay back part of the principal to debtholders over the debt's life. The principal amount that is being paid back within the current year is held in the short/current long-term debt account. Don't confuse this with interest being paid on debt during the current year, as that expense is housed in a separate account (interest payable).
For example, suppose company ABC issues a $100 million bond that matures in 10 years with the covenant that it must make equal repayments over the life of the bond. In this situation, the company is required to pay back $10 million ($100 million/10 years) per year in principal. Each year, the balance sheet will split the liability up into what is to be paid in the next 12 months and what is to be paid after that. In the first year, for example, the company is required to pay $10 million in principal, so this amount will be held in the short/current long-term debt account. The remainder of the account ($90 million) is held in the long-term liability account on the balance sheet. (See also: Reading The Balance Sheet, When Companies Borrow Money and Debt Reckoning.)