When a company takes on debt such as a bank loan, it is recorded as a note payable on its balance sheet -- a financial statement that provides a snapshot of the company's financial position as of a given date. It's recorded as a note payable because the contract underlying the lending agreement is a promissory note. Balance sheets show the company's asset base balanced against the liabilities and shareholders' equity that fund it. Typically, balance sheets that are presented to investors or creditors are classified, meaning they break down assets and liabilities into short-term and long-term.
Short-Term Note Payable
If the term of a loan is longer than one year, the note payable is often broken down on the balance sheet into two line items for accounting purposes: notes payable, and the current portion of notes payable. The latter reflects the portion of the loan that is due during the upcoming fiscal year, and is often written as short-term notes payable. Additionally, any other bank loans taken on that have a duration of less than one year would also be classified as short term notes payable.
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