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Bank debt

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Bank debt is a long-term liability a business takes on by borrowing money from its bank. It appears under liabilities on the balance sheet as part of all the money the company owes its creditors.

Companies use bank debt to pay for long-term assets such as land, buildings and equipment or to add more cash to their working capital to cover ongoing, short-term expenses (current liabilities). The details about bank debt and other long-term liabilities are found in the notes to the financial statements included with the balance sheet.

As a long-term liability, bank debt is payable beyond 12 months, which often means a company makes payments over many years to settle the amount.

More about bank debt

The balance sheet below shows that ABC Co. had $70,000 in bank debt on March 31, 2012. With $180,000 in long-term assets and $130,000 in long-term debt, the company has a healthy ratio of long-term assets to long-term debts (it has $1.40 for every $1 it owes).

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