a.  Two-year Notes Payable:

Notes Payable represent a company’s written promissory notes to repay borrowed funds, typically involving a formal agreement specifying the terms, interest rate, and repayment schedule.

The key aspect distinguishing this from a current liability is the term “two-year,” indicating that these notes mature or become due beyond the one-year mark. Companies issue these notes for financing or operational purposes, intending to repay them over a longer period, making them long-term liabilities.

b. Bonds Payable:

Bonds Payable are similar to Notes Payable but in the form of bonds a type of long-term debt instrument. These are typically issued by corporations or governments to raise capital. Bonds have a specified maturity date, often ranging from several years to several decades.

The term “Payable” refers to the obligation to repay the principal amount at maturity. Since bonds have a longer-term repayment schedule, they are not classified as current liabilities.

c. Mortgage Payable:

Mortgages are loans secured by real property, commonly used to purchase real estate or property assets. They involve a structured repayment plan over a considerable period, usually spanning multiple years or even decades.

Mortgages can have varying terms, often 15, 20, or 30 years. Because of their extended repayment period, Mortgages are categorized as long-term liabilities rather than current liabilities.

In essence, the distinction between current and long-term liabilities hinges on the expected timeline for repayment. Current liabilities encompass obligations expected to be settled within a year or the operating cycle, whichever is longer.

Conversely, long-term liabilities involve obligations with repayment terms extending beyond the upcoming year. Understanding this differentiation is crucial for financial analysis and assessing a company’s ability to meet short-term obligations without causing financial strain or insolvency.