In a classified balance sheet, current (short-term) and non-current (long-term) assets and liabilities are presented separately. In most cases current assets and liabilities are easy to distinguish and don’t present any issues with their classification and presentation on a balance sheet. However, there are certain items which may require special treatment because they need to be separated into the current and non-current portions. In the second part of this article we will discuss two items: deferred rents and notes payable.

Short and long-term classification of certain assets and liabilities (Part II)

2. Current and non-current portions of long-term loans (debt)

The note payable is a loan which the company obtained to finance its growing operations. The loan requires monthly payments consisting of principal and interest. The loan balance of $3,953 (as of 12/31/20X3) is presented as a long-term liability. The following information pertains to the loan:

Loan start date	4/30/20X3
Loan maturity date	4/30/20X6
Principal	$5,000
Monthly payment*	$150
Interest rate	5%

(*) Monthly payments include principal and interest.

The loan will be paid off via monthly payments. The table below shows the amortization (payment) schedule:

Date	Month	Payment	Interest	Principal	Balance
Apr 20X3	$0				$5,000
May 20X3	1	150	21	129	4,871
Jun 20X3	2	150	20	130	4,741
Jul 20X3	3	150	20	130	4,611
Aug 20X3	4	150	19	131	4,481
Sep 20X3	5	150	19	131	4,349
Oct 20X3	6	150	18	132	4,218
Nov 20X3	7	150	18	132	4,085
Dec 20X3	8	150	17	133	3,953
Jan 20X4	9	150	16	133	3,819
Feb 20X4	10	150	16	134	3,685
Mar 20X4	11	150	15	134	3,551
Apr 20X4	12	150	15	135	3,416
May 20X4	13	150	14	136	3,280
Jun 20X4	14	150	14	136	3,144
Jul 20X4	15	150	13	137	3,007
Aug 20X4	16	150	13	137	2,870
Sep 20X4	17	150	12	138	2,732
Oct 20X4	18	150	11	138	2,594
Nov 20X4	19	150	11	139	2,454
Dec 20X4	20	150	10	140	2,315
Jan 20X5	21	150	10	140	2,175
Feb 20X5	22	150	9	141	2,034
Mar 20X5	23	150	8	141	1,892
Apr 20X5	24	150	8	142	1,750
May 20X5	25	150	7	143	1,608
Jun 20X5	26	150	7	143	1,465
Jul 20X5	27	150	6	144	1,321
Aug 20X5	28	150	6	144	1,177
Sep 20X5	29	150	5	145	1,032
Oct 20X5	30	150	4	146	886
Nov 20X5	31	150	4	146	740
Dec 20X5	32	150	3	147	593
Jan 20X6	33	150	2	147	446
Feb 20X6	34	150	2	148	298
Mar 20X6	35	150	1	149	149
Apr 20X6	36	150	1	149	(0)
Total		5,395	395	5,000

The original balance of $5,000 started off in April 20X3 when the loan was obtained. By making monthly payments, the company reduced the balance to $3,953 (the amount highlighted in light blue) at 12/31/20X3. Each monthly payment of $150 is composed of principal and interest components. The interest component is determined by multiplying the previous month loan balance by the interest rate of 5% and dividing the result by 12 (i.e., division by 12 is needed to apply the monthly interest rate instead of the annual rate).

As the table above shows, during the following 12 months monthly loan payments will reduce the outstanding loan balance by $1,638 (the amounts highlighted in light orange). This amount represents the current portion of the note payable at 12/31/20X3. The reduction in loan principal due to monthly payments after 12/31/20X4 form the non-current portion of the note payable. These amounts are highlighted in light green and total $2,315. Therefore, at 12/31/20X3 the note payable should be split into two portions (current and non-current). The balance sheet below includes this change. Note that a new element is now included in current liabilities and it is titled Current Portion of Long-term Note Payable (highlighted in yellow):

Friends Company Consolidated Balance Sheet as of December 31, 20X3
ASSETS
Current assets:
Cash and cash equivalents	$3,300
Accounts receivable	2,900
Inventories	2,600
Prepaid expenses	48
Total current assets	8,848
Property, plant and equipment (at cost)
Buildings	5,000
Machinery, equipment	8,720
Less: Allowance for depreciation	(5,500)
Property, plant and equipment (net)	8,220
Other assets	76
Total Assets	17,144
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable	1,600
Accrued expenses	1,200
Current portion of long-term note payable	1,638
Income taxes payable	900
Deferred rents	20
Total current liabilities	5,358
Long-term note payable	2,315
Other liabilities	133
Stockholder's equity:
Common stock	1,000
Paid-in capital	1,850
Retained earnings	6,488
Total stockholder's equity	9,338
Total Liabilities and stockholder's equity	17,144

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