Short-Term Debt

A company’s short-term debt is a financial obligation that is due in the current fiscal year. Current liabilities and short-term liabilities are other terms for it. Accountants interchange these terms. These are shown in a company’s balance sheets under the current liabilities section.

A company typically has two types of short-term debts:

• Financial debts are funds borrowed to expand the business. The majority of financial debts are long-term, but those that mature within 12 months are classified as short-term. Short-term bank loans are one example.
• Operating debts are funds borrowed to fund a company’s primary operational costs for the current fiscal year. Accounts payable, salaries, rents, commercial papers, and stock dividends are examples.

To keep the company’s finances in order, current liabilities must be less than cash. The greater the debt to equity ratio, the greater the risk to shareholders.