A note payable that matures in 18 months should be classified as which type of liability?

• A. Current liability
• B. Long-term liability
• C. Asset
• D. Equity

Answer: (B)

Classification of liabilities on the balance sheet depends on when the obligation is due relative to the balance sheet date. A note payable that matures in 18 months is not due within the next year, so it is a long-term liability. If the debt were due within one year, it would be current; sometimes a portion due within the coming year is shown as current while the remainder stays long-term, but with 18 months to maturity there’s no current portion. It’s not an asset or equity, since those categories are resources or owners’ claims, not obligations to be paid.