Current Portion Of Long-Term Debt (CPLTD)

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What is a 'Current Portion Of Long-Term Debt (CPLTD)'

Current portion of long-term debt (CPLTD) refers to the section of a company's balance sheet that records the total amount of long-term debt that must be paid within the current year. For example, if a company owes $100,000 and $20,000 of it is due in the current year, it records $80,000 as long-term debt and $20,000 as CPLTD.

BREAKING DOWN 'Current Portion Of Long-Term Debt (CPLTD)'

When reading a company's balance sheets, creditors and investors use the CPLTD to determine if a company has sufficient liquidity to pay off its short-term obligations. Interested parties compare this amount to the company's current cash and cash equivalents to measure whether the company is actually able to make its payments. A company with a high number in its CPLTD and a relatively small cash position has a higher risk of default; as a result, lenders may decide not to offer the company more credit, and investors may sell their shares.

Difference Between Current and Long-Term Debt

Businesses classify their debts as current or long term. Current debts include liabilities such as rent payments, outstanding invoices to vendors, payroll costs, utility bills and other expenses the business pays on a regular basis or owes during the current year. Long-term debts include loans or other financial obligations that have a repayment schedule lasting over a year. Eventually, as the payments on long-term debts come due, these debts become current debts, and the company's accountant records them as the CPLTD.

How to Reduce Current Portion of Long-Term Debt

If a business wants to keep its debts classified as long term, it can roll forward its debts into loans with balloon payments or instruments with longer maturity dates. For example, say a company has a long-term debt of $100,000. Its CPLTD is projected to be $10,000 for the next year. However, to avoid this amount, the business takes out a loan with a lower interest rate and a balloon payment due in two years. As a result, its CPLTD falls significantly.

In other cases, long-term debts may automatically convert to CPLTD. For example, if a company breaks a covenant in its loan, the lender may reserve the right to call the entire loan due. In this case, the amount due automatically converts from long-term debt to CPLTD.

Recording Long-Term Debts and CPLTD

To illustrate how businesses record long-term debts, imagine a business takes out a $100,000 loan, payable over a five-year period. It records a $100,000 credit under the accounts payable portion of its long-term debts, and it makes a $100,000 debit to cash to balance the books.

At the beginning of each tax year, the company's accountant moves the portion of the long-term debt due that year to the current debt section of the company's balance sheet. For example, if the company has to pay $20,000 in payments, the accountant debits the long-term debt column and credits the CPLTD column for that amount. As the accountant pays down the debt each month, he debits CPLTD and credits cash.