Question

Coltrane Company has a $5,000 note payable that is paid in $1,000 installments over five years. How would the portion that must be paid within the next year be reported on the balance sheet?

Answer 1

Answer:

It will be reported as current liability in the balance sheet.

Explanation:

Liability is a present obligation of an entity which its settlement will result in outflow of economic resources. There are two types of liability:

Current and Non current.

Current liabilities are liabilities that an entity has an obligation to settle within an accounting period, usually one year while non-current liabilities are liabilities of long term nature that the settlement is longer than one accounting period.

In the case of Coltrane Company, the next installment of the note payable will be reported under current liabilities because its settlement falls within the one accounting period, i.e. next year. So $1,000 will be reported under current liabilities while the remaining ($5,000-$1,000) $4,000 will be reported under non current liabilities because its settlement does not fall within the next accounting period.