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12.3 Account for Short-Term Debt

Short-Term Notes Payable​

Short-Term Notes Payable are written promises to pay within one year.

Example:

  • Borrow €10,000 for 6 months at 6% interest

Borrowing:

510000 Cash                       €10,000
120000 Notes Payable                          €10,000
To record short-term note

Interest Accrual (Monthly):

  • Interest: €10,000 × 0.06 × (1/12) = €50
660000 Interest Expense           €50
450000 Interest Payable                        €50
To accrue interest

Payment at Maturity:

  • Principal: €10,000
  • Interest: €300 (6 months)
120000 Notes Payable             €10,000
450000 Interest Payable                        €300
510000 Cash                                   €10,300
To record note payment

PCN Accounts:

  • 120000: Notes Payable (Emprunts)
  • 450000: Interest Payable (Intérêts à Payer)

Current Portion of Long-Term Debt​

Current Portion:

  • Portion of long-term debt due within one year
  • Reclassified from long-term to current

Example:

  • Long-term loan: €100,000
  • Payment due next year: €20,000

Reclassification:

120000 Long-Term Debt             €20,000
121000 Current Portion of Long-Term Debt      €20,000
To reclassify current portion

Luxembourg Compliance Note​

Short-term debt in Luxembourg:

  • Must be properly classified
  • Must accrue interest
  • Must be disclosed
  • Must comply with PCN
  • Must maintain records

Think It Through​

What is the difference between a short-term note payable and accounts payable? When might each be used?