what is short term debt 
short term debt also called current liabilities is a firm s financial obligations that are expected to be paid off within a year it is listed under the current liabilities portion of the total liabilities section of a company s balance sheet investopedia madelyn goodnightunderstanding short term debtthere are usually two types of debt or liabilities that a company accrues financing and operating the former is the result of actions undertaken to raise funding to grow the business while the latter is the byproduct of obligations arising from normal business operations financing debt is normally considered to be long term debt in that it is has a maturity date longer than 12 months and is usually listed after the current liabilities portion in the total liabilities section of the balance sheet operating debt arises from the primary activities that are required to run a business such as accounts payable and is expected to be resolved within 12 months or within the current operating cycle of its accrual this is known as short term debt and is usually made up of short term bank loans taken out or commercial paper issued by a company the value of the short term debt account is very important when determining a company s performance simply put the higher the debt to equity ratio the greater the concern about company liquidity if the account is larger than the company s cash and cash equivalents this suggests that the company may be in poor financial health and does not have enough cash to pay off its impending obligations the most common measure of short term liquidity is the quick ratio which is integral in determining a company s credit rating that ultimately affects that company s ability to procure financing quick ratio current assets inventory current liabilitiestypes of short term debtthe first and often the most common type of short term debt is a company s short term bank loans these types of loans arise on a business s balance sheet when the company needs quick financing in order to fund working capital needs it s also known as a bank plug because a short term loan is often used to fill a gap between longer financing options another common type of short term debt is a company s accounts payable this liabilities account is used to track all outstanding payments due to outside vendors and stakeholders if a company purchases a piece of machinery for 10 000 on short term credit to be paid within 30 days the 10 000 is categorized among accounts payable commercial paper is an unsecured short term debt instrument issued by a corporation typically for the financing of accounts receivable inventories and meeting short term liabilities such as payroll maturities on commercial paper rarely range longer than 270 days commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates and is useful because these liabilities do not need to be registered with the sec sometimes depending on the way in which employers pay their employees salaries and wages may be considered short term debt if for example an employee is paid on the 15th of the month for work performed in the previous period it would create a short term debt account for the owed wages until they are paid on the 15th lease payments can also sometimes be booked as short term debt most leases are considered long term debt but there are leases that are expected to be paid off within one year if a company for example signs a six month lease on an office space it would be considered short term debt finally taxes are sometimes categorized as short term debt if a company owes quarterly taxes that have yet to be paid it could be considered a short term liability and be categorized as short term debt 