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Current liabilities vs. short term debt
What is the difference between the two? I always thought they were the same thing but evidently there is a diff.
Both are defined as debt that must be repaid within 12 months, but there must be something I'm missing. When you check the balance sheet of Timberline, the current liabilities are $16.4 mil while the short term debt is 0.
Help it has been too long since I had accounting. Can someone explain and speak slowly por favor.

The Dude
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Dude-

Current Liabilities is a broad category that includes such items as:

Accounts Payable
Notes Payable
Unearned Revenue
Current Portion of Long-Term Debt
and, yes, Short-Term Debt

The distinctions between these are acedemic. A/P are generally amounts due to suppliers for cost of goods. Notes payable are short-term promissory notes to a bank. Unearned revenue occurs when a company is paid before it provides a good or service. The other two are self-explanitory.

Hope this helps.

Steve Wallen
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The distinctions between these are acedemic. A/P are generally amounts due to suppliers for cost of goods. Notes payable are short-term promissory notes to a bank. Unearned revenue occurs when a company is paid before it provides a good or service. The other two are self-explanitory.

Steve,

I just wanted to add one more distinction to your very Foolish explanation. The biggest difference that I see between the debt-related items and the other current liabilities is that the debt items require an interest payments, whereas the other items do not. In Foolish terms, we tend to view the non-debt related current liabilities as a good thing, because they basically represent "free money" ... an interest free loan to our company. Obviously, these payments cannot be deferred forever if the company wants to stay in the good graces of its suppliers, but it can definitely work in the company's favor for the short-term.

It is kind of like the credit card "float" period between the time you make a purchase and when you actually have to pay the bill. Who among us hasn't used this to our advantage?

Fool On!

the LanceMan
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The biggest difference that I see between the
debt-related items and the other current liabilities is that the debt items require an interest payments<<


Thanks Lance Man. This IMHO is more than an academic diff. The fact that all current liablilities are not bad and that all current assests are not good is the heart of the flowie which in turn is essential to evaluating companies using the rulemaker approach.

-MarkV
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I just want to add one more thing.

of the current liabilities, unearn revenue is even
better than free money.

In essence, your customers pay you money before you provide them with services/products. Not only is this interest free loan, you could keep this money and earn some more extra buck on it. and It sorta guaranteed payments on your services/products. I said nothing is better than these unearned revenue liability.

One example: DELL computer, they received payments way before they ship their products and even before they paid for their inventories. You see how well dell has been doing.

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When you ask a question here on the MF you get a timely and thorough response. As we say here in the South, "Much obliged."

The Dude
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Current liabilities vs. short term debt
What is the difference between the two? I always thought they were the same thing but evidently there is a diff.


Well, I could say it this way. All short term debt is a current liability, but all current liabilities are not short term debt. But, that doesn't explain the whole thing.

The difference that we're interested in is that short term debt requires an interest payment current liabilities such as accounts payable do not. An accounts payable balance, therefore, is like having someone give you the use of their money for free.

Phil
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LanceMan-

Thank you for the excellent point. Sorry to have glossed over this.

Steve Wallen
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