What is Long-Term Debt?

Long-term debt represents obligations that are due more than one year from the balance sheet date. It is typically used to finance major investments such as property, equipment, or long-lived projects. Common forms include bonds payable, term loans, and long-term notes. Long-term debt affects both solvency and financial risk through required interest and principal payments. Proper management involves balancing financing costs with cash flow capacity and covenant compliance.

Presentation of Long-Term Debt

Long-term debt is classified in a separate line item in a company's balance sheet, in the long-term liabilities section. As portions of long-term debt become due for payment, they are reclassified as short-term debt. A sample presentation of long-term debt in a balance sheet appears in the following exhibit.

Types of Long-Term Debt

There are several general types of long-term debt, which are noted below:

Bonds payable. Bonds are debt securities issued by companies to raise large amounts of capital, typically from public investors. They pay periodic interest (called coupon payments) and repay the principal at maturity. Bonds can be secured or unsecured and vary in term length.
Notes payable. Notes payable are written promises to repay borrowed amounts, often from banks or financial institutions, over a period longer than one year. These may have fixed or variable interest rates and are typically used for financing equipment, property, or expansion.
Mortgages payable. Mortgages are loans secured by real estate property, commonly used to finance buildings or land. If the borrower defaults, the lender can seize the property. These usually involve fixed monthly payments over long periods.
Lease liabilities (finance leases). Under accounting standards like ASC 842, certain long-term leases are classified as finance leases and recorded as liabilities. These represent obligations to make future lease payments for assets like equipment or property, and they also require recognizing the leased asset on the balance sheet.
Convertible debt. Convertible debt starts as a regular loan or bond but gives lenders the option to convert their debt into company equity (usually stock) under certain conditions. This type of debt is often used by startups or growing companies to attract investment with lower interest costs.