Question

Why is interest ignored when valuing accounts payable? How is interestcomputed on an interest-bearing short-term note? When would debt that must berepaid within the next year be classified as long-term instead of current?

Answer 1

q-1

because the interest amount is so small on the accounts paayble , it is general practice to show the accounts payable balances as whole leaving the interest

q-2

Interest=face value of short term note * interest rate * (no. of days note issued /360 days)

so for $5000 60 days 12 % note

we have interest = 5000*12%*60/360=$100

short term notes have a tenure less than a year

q-3

The cuurent portion of long term debt is the amount of principal which is due in next 12 months.

so each year we divide our loan amount into current portion and non current portion

In cases of refinancing where th portion of long term debt payable next year is paid out of proceeds of the new long term loan,the remaining current portion is not transferred to current liabilties but is left untouched as ling term debt