Long-Term Liabilities: Classification, Recognition, and Reporting

Graziano Stefanelli
Apr 25, 2025
3 min read

Long-term liabilities represent a company’s obligations that are not due within the next 12 months or the company’s operating cycle, whichever is longer. They form a key part of a company’s capital structure and provide insight into its financial leverage, risk profile, and future cash flow commitments.

Accounting for long-term liabilities requires companies to accurately recognize, measure, and classify obligations such as bonds payable, lease liabilities, pensions, deferred taxes, and more. Proper reporting of these items enhances financial statement transparency and helps stakeholders assess a company's solvency and financial health.

This article provides a complete guide to understanding, accounting for, and analyzing long-term liabilities, including examples and disclosure requirements under U.S. GAAP and IFRS.

1. What Are Long-Term Liabilities?

Long-term liabilities are financial obligations that extend beyond one year. Unlike current liabilities, which must be settled in the short term, long-term liabilities provide deferred financing, often tied to capital investment, pensions, leases, or tax strategies.

✦ These liabilities may include interest-bearing debt, obligations under long-term contracts, or non-cash liabilities that arise from timing differences or future commitments.

2. Common Types of Long-Term Liabilities

✦ Bonds Payable – debt issued in capital markets, usually carrying interest and a set maturity

✦ Notes Payable (long-term) – loans or formal agreements due beyond 12 months

✦ Lease Liabilities – future obligations under non-cancellable leases (ASC 842 / IFRS 16)

✦ Pension and Post-employment Benefit Obligations – actuarially calculated liabilities

✦ Deferred Tax Liabilities – future tax due to temporary differences in tax vs. book accounting

✦ Asset Retirement Obligations (ARO) – legal obligations to dismantle or restore assets in the future

✦ Contingent Liabilities – recognized when future outflows are probable and measurable

3. Recognition and Measurement

Long-term liabilities are recognized when:

✦ A present obligation exists due to a past event

✦ Settlement will require economic resources

✦ The amount and timing can be reasonably estimated

Initial Measurement:

Most long-term liabilities are measured at present value, using a discount rate that reflects the cost of borrowing or risk.

✦ Debt: recognized at proceeds received, net of issue costs

✦ Leases: measured at the present value of lease payments

✦ Pension liabilities: measured using actuarial assumptions

4. Example – Bonds Payable (Discount)

Scenario:

Face value: $500,000
Coupon: 5%, payable annually
Market rate: 6%
Term: 5 years
Issue price: $475,000

Journal Entry at Issuance:

Debit: Cash – $475,000

Debit: Discount on Bonds Payable – $25,000

Credit: Bonds Payable – $500,000

The discount is amortized over the bond term, increasing interest expense.

5. Current Portion of Long-Term Liabilities

The portion of a long-term liability due within 12 months is reclassified as a current liability.

✦ Example: If $50,000 of a $500,000 bond is due in the next year, it moves to “Current portion of long-term debt.”

6. Presentation in Financial Statements

Balance Sheet:

✦ Reported under non-current liabilities

✦ Segregate by nature (e.g., “Bonds Payable,” “Lease Liabilities”)

✦ Show current portion separately

Income Statement:

✦ Interest expense from long-term debt

✦ Pension cost, lease amortization, and asset retirement accretion expenses

Cash Flow Statement:

✦ Principal payments → financing activities

✦ Interest payments → operating or financing (depending on policy under IFRS)

7. IFRS vs. U.S. GAAP – Key Differences

Area	U.S. GAAP	IFRS
Lease Liabilities	ASC 842: separates finance and operating leases	IFRS 16: all leases on balance sheet (lessee)
Interest Classification (Cash Flow)	Operating or financing (choice)	Also offers policy choice
Discount Amortization	Straight-line or effective interest	Effective interest required
Deferred Tax Presentation	Classified as non-current	Also non-current