To calculate long-term debt, add every borrowing obligation in the non-current liabilities section of the balance sheet, then subtract the current portion of long-term debt that has already been reclassified to current liabilities. The formula looks like this:
Long-Term Debt = (Mortgages + Bonds Payable + Long-Term Notes Payable + Other Non-Current Borrowings) − Current Portion of Long-Term Debt
The math is simple. Picking the right inputs is where most people go wrong, so the rest of this walkthrough focuses on what qualifies, where to find it, and how to check your work.
What Counts as Long-Term Debt
Under U.S. accounting standards, any liability expected to be settled more than one year from the balance sheet date is classified as non-current. Long-term debt is the borrowing portion of that non-current category. The section also holds items that are not debt in the traditional sense, such as deferred tax liabilities and pension obligations, and those get excluded from the calculation.
The obligations you’re looking for are typically:
- Mortgages secured by real property, whether residential or commercial, with repayment terms usually spanning 15 to 30 years.
- Bonds payable, meaning debt securities issued to investors with fixed maturity dates and stated interest rates. On the balance sheet they appear at carrying value, which may differ from face value if the bonds were issued at a premium or discount.
- Long-term notes payable, which cover multi-year business loans, equipment financing, and vehicle loans repaid beyond twelve months.
- Capital lease obligations, where the lessee effectively owns the asset for accounting purposes and records a liability for future lease payments.
Each obligation has a contract or indenture behind it setting repayment terms, interest rates, and maturity dates. When you’re calculating debt for a company you don’t run, you won’t see those contracts, but their financial effects flow into the balance sheet line items you’ll be adding.
Where to Find the Numbers
Everything you need sits on the balance sheet. Liabilities are split into current (due within one year) and non-current (due after one year). Your long-term debt figures come from the non-current section, and one number comes from the current section: the current portion of long-term debt.
For publicly traded companies, the annual report filed with the SEC on Form 10-K is the most reliable source. Those filings include the balance sheet itself plus notes to the financial statements that break down each debt obligation individually with maturity dates, interest rates, and any collateral pledged. The debt maturity schedule in the notes is particularly useful because it shows how much principal comes due in each of the next five years.
For a private company or personal finances, the most recent internal financial statements serve the same purpose. If you’re working from loan documents rather than a prepared balance sheet, pull the remaining principal balance from each amortization schedule. One common mistake here: use the principal balance, not the total remaining payments. Interest is an expense, not a balance sheet liability, so it doesn’t belong in your long-term debt total.
Whatever your source, confirm every figure comes from the same reporting date. Mixing numbers from different periods produces a total that never existed at any single point in time.
Step-By-Step Calculation
Work through the formula in three steps.
Step 1. List every debt obligation in non-current liabilities. Go line by line through the non-current liabilities section and pull each item that represents borrowed money. Skip deferred tax liabilities, pension obligations, and other non-debt items.
Step 2. Add them together. Sum the principal balances. Say a company reports $2 million in mortgage debt, $5 million in bonds payable, and $1 million in equipment loans. Gross long-term debt comes to $8 million.
Step 3. Subtract the current portion. In the current liabilities section, find the line called “current portion of long-term debt” or “current maturities of long-term debt,” and subtract that figure from the Step 2 total. If $500,000 of the $8 million is due within the next twelve months, net long-term debt is $7.5 million.
Your result should match the non-current debt subtotal reported on the balance sheet. If it doesn’t, the gap usually traces back to including a non-debt liability like deferred revenue in your total, or to missing a debt line item disclosed only in the notes.
Why the Current Portion Gets Subtracted
This step trips people up because the same loan appears in two places on the balance sheet. A 10-year mortgage doesn’t sit entirely in non-current liabilities. The principal payments due within the next twelve months get pulled out and reclassified as a current liability, while the remaining balance stays in non-current.
Accounting standards require the split so anyone reading the balance sheet can see near-term cash demands separately from long-range obligations. If you skip the subtraction, you’ll double-count the portion already reflected in current liabilities. That inflates the long-term debt figure and distorts every ratio built on top of it.
To find the current portion yourself, check each loan’s amortization schedule and identify how much principal is scheduled for repayment before the next balance sheet date. On a prepared balance sheet, that work is already done. Look for the line item in current liabilities.
Handling Operating Lease Liabilities
Since ASC 842 took effect, operating leases appear on the balance sheet as both a right-of-use asset and a corresponding lease liability. Before the change, operating leases lived only in the footnotes, so long-term debt calculations missed a significant obligation at companies that leased heavily.
Under the current standard, lessees split the operating lease liability into a current portion (payments due within the year) and a non-current portion, the same way traditional debt is split. Whether to include lease liabilities in your long-term debt total depends on why you’re calculating it. Lenders and credit analysts increasingly treat the non-current lease liability as a form of long-term obligation, and many loan covenants now explicitly include it. If you’re running the number for a covenant compliance test, read the covenant language carefully. The definition of “debt” in the loan agreement controls, not the accounting label.
For a pure balance sheet calculation of long-term borrowings, most practitioners keep lease liabilities as a separate line item rather than lumping them in with bonds and notes payable. If you’re computing a leverage ratio to assess overall financial risk, ignoring a large lease liability would understate what the company owes. Match the treatment to the question you’re answering.
Common Mistakes That Distort the Total
Where things go wrong is almost always the inputs. A few errors show up repeatedly:
- Including non-debt liabilities. Deferred tax liabilities, pension obligations, and deferred revenue all sit in non-current liabilities but are not long-term debt. Grabbing the entire non-current liabilities subtotal will overstate the figure.
- Forgetting the current portion. Principal due this year has already moved to current liabilities. If your starting point is the full loan balance from an amortization schedule rather than the balance sheet, you have to subtract it manually.
- Mixing reporting dates. Pulling debt from a December balance sheet and equity from a March report gives you a total that reflects no actual moment in time.
- Ignoring bond premiums and discounts. Bonds are carried at their amortized value, which may sit above or below face value. Use the carrying amount shown on the balance sheet, not the par value on the bond’s face.
- Using total debt instead of long-term debt. Short-term credit lines and accounts payable belong nowhere in the long-term debt total. If a figure looks too high, check whether short-term borrowings slipped in.
The best safeguard is reconciling your total against the balance sheet’s own subtotals. If the numbers don’t tie out, work backward through each line item until you find the discrepancy.
When Long-Term Debt Gets Reclassified
Long-term debt doesn’t always stay long-term, and the searcher checking a balance sheet needs to know this. If a company violates a covenant in its loan agreement, such as exceeding a debt-to-equity limit the lender set, the entire loan balance can become payable on demand. When that happens, the debt must move from non-current to current liabilities, even if the lender hasn’t actually demanded repayment.
The reclassification can be severe. A company that looked well-leveraged suddenly shows a spike in current liabilities, which may trigger additional covenant violations on other loans. Even if the lender waives the violation, the debt stays classified as current unless it’s probable the borrower can remain in compliance for the next twelve months.
Public companies face additional disclosure obligations after a covenant breach. SEC Regulation S-X requires companies to disclose in the notes to their financial statements the facts and amounts of any default on debt or breach of a loan covenant that existed at the balance sheet date and hasn’t been cured. If the lender granted a waiver, the company must state the amount of the obligation and the period the waiver covers.1GovInfo. SEC Regulation S-X Rule 4-08
If you’re calculating long-term debt and notice a large chunk of previously non-current debt has moved to current liabilities, check the footnotes before drawing conclusions. A covenant violation is often the explanation, and it changes the picture of the company’s financial position more than the calculation itself does.