Key Concepts
A long-term borrowing affects two financial statements:
Statement of Financial Performance — the interest expense for the year is listed under Less: Other expenses. (The loan itself is not an expense — only the interest is.)
Statement of Financial Position — the loan splits across two sections.
The current portion of a long-term borrowing. At each year-end, look at how much of the loan must be repaid within the next financial year. That part is due soon, so it is no longer long-term. You move it to current liabilities and call it the current portion of long-term borrowings; the rest stays as long-term borrowings, a non-current liability.
| Item | Section | Amount |
|---|---|---|
| Long-term borrowings | Non-current liability | Outstanding loan − current portion |
| Current portion of long-term borrowings | Current liability | The instalment due within the next financial year |
| Interest expense payable | Current liability | Interest incurred but not yet paid |
This split happens only in the Statement of Financial Position — there is no journal entry to move it. The Bank loan account still holds the full balance; the split is only how the figure is presented.
The key move: split the loan at year-end. Take the outstanding loan balance (the amount still owed), set aside the portion due in the next 12 months as the current portion of long-term borrowings (current liability), and show the rest as long-term borrowings (non-current liability).
Statement of Financial Performance for the year ended 31 December 20X4 (extract)
| $ | |
|---|---|
| Less: Other expenses | |
| Interest expense | 7,200 |
- Outstanding loan at 31 December 20X4 = $120,000 (no instalment paid yet).
- Current portion (due 31 March 20X5, within the next financial year) = $24,000.
- Long-term borrowings = $120,000 − $24,000 = $96,000.
Statement of Financial Position as at 31 December 20X4 (extract)
| $ | |
|---|---|
| Non-current liabilities | |
| Long-term borrowings ($120,000 − $24,000) | 96,000 |
| Current liabilities | |
| Current portion of long-term borrowings | 24,000 |
| Interest expense payable | 7,200 |
Showing the full loan as non-current. The instalment due within the next financial year must be moved to current liabilities as the current portion of long-term borrowings.
Putting interest expense payable under non-current liabilities. It is expected to be settled within the next financial year — typically paid together with the next loan instalment — so it is a current liability.
Listing the loan as an expense in the Statement of Financial Performance. Only the interest is an expense; the loan amount belongs in the Statement of Financial Position.
Labelling the line item "Bank loan" in the Statement of Financial Position. "Bank loan" is the ledger account name; the Statement of Financial Position line item is Long-term borrowings.