Which term describes debt expected to be repaid after 12 months, such as mortgages and long-term notes?

Which term describes debt expected to be repaid after 12 months, such as mortgages and long-term notes?

• A. Deferred Revenue
• B. Current Asset
• C. Short Term Liability
• D. Long Term Liability

Answer: (D)

Debts are categorized on the balance sheet by when they are due. Debt that isn’t due within the next year—such as a mortgage or a long-term note—is classified as a long-term liability. These obligations stay on the balance sheet as noncurrent liabilities until they come due, signaling the company’s longer-term financial commitments. A current liability would be debt due within 12 months, so that doesn’t apply here. A current asset is something the company owns and expects to convert to cash within a year, so it isn’t a liability. Deferred revenue is a liability representing unearned revenue, but it is typically settled within a year and thus handled as a current liability. Therefore, the term that fits debt expected to be repaid after 12 months is long-term liability.

Debts are categorized on the balance sheet by when they are due. Debt that isn’t due within the next year—such as a mortgage or a long-term note—is classified as a long-term liability. These obligations stay on the balance sheet as noncurrent liabilities until they come due, signaling the company’s longer-term financial commitments. A current liability would be debt due within 12 months, so that doesn’t apply here. A current asset is something the company owns and expects to convert to cash within a year, so it isn’t a liability. Deferred revenue is a liability representing unearned revenue, but it is typically settled within a year and thus handled as a current liability. Therefore, the term that fits debt expected to be repaid after 12 months is long-term liability.