Is Bonds Payable a Long-Term Liability?
Bonds payable are a common way for larger businesses to raise capital. But how are they classified on the balance sheet? The answer lies in their maturity date and repayment terms.
What Are Bonds Payable?
- Bonds payable represent debt issued to investors in exchange for cash.
- The business agrees to repay principal plus interest over a fixed period.
Bonds Payable: Long-Term Liability
- Generally classified as a long-term liability because repayment is due more than one year from the balance sheet date.
- Reported under “Liabilities” on the balance sheet until maturity.
Exceptions: Current Portion of Bonds Payable
- If a bond’s repayment date is within 12 months, the portion due becomes a current liability.
- Example: A 10-year bond issued in 2016 that matures in 2026 – in 2025, the final year’s repayment portion will shift to current liabilities.
Why It Matters for Business Owners
- Affects debt-to-equity ratio and creditworthiness.
- Impacts financial planning, cash flow, and investor relations.
- Proper classification keeps financial statements CPA-ready and compliant.
Conclusion
Yes – bonds payable are long-term liabilities unless repayment is due within 12 months, in which case they are reclassified as current liabilities.
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