Current Maturities or Current Portion of Long-term Debt

See page 17: Under Current Liabilities

Current Maturities or Current Portion of Long Term Debt is the next annual principal payment

on a loan.

Assume that a company has a note payable to the bank of $100,000. According to the loan

they must make annual payments on the loan of $10,000 plus 5% interest. The journal entry to

record the payment is:

Interest Expense 5,000 (100,000 x 5%) Note Payable Bank 10,000 Cash 15,000

To record payment.

After this payment the loan balance is $90,000. The Current Portion (which is included under

Current Liabilities) is $10,000. This is the amount of the next principal payment. Note Payable

Bank for $80,000 will be included under Long Term Liabilities. This is the part of the loan to be

paid after one year.

So, when you see “annual payment” regarding a loan payment in a problem, it means that that

amount will be included in Current Liabilities.

See the following examples.

Prepaid Insurance

Prepaid insurance is insurance paid in advance. Like Prepaid Rent, it is a current asset.

Journal entries for insurance will differ depending on the facts of each problem. For example,

see the insurance problem on page 96. The entire $1,200 has been prepaid and it is the

remaining two years of the insurance policy. Insurance Expense for one year will be $600.

See the following journal entry.

The insurance problem on page 102 is different.

Everything in Prepaid Insurance is expensed this year. Then, a new policy is purchased and six

months of that policy is expensed this year.

See the following journal entry.