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There was not enough space to properly ask my question. Let's try this again.
I was asked today why only the principle portion of the current portion of long-term debt is included in the current ratio when the interest portion will also require payment within the next 12 months. Of course notes payable on the balance sheet are discounted to net present value (i.e. in most cases, the principle amount due) in accordance with generally accepted account principles and the current assets and liabilities are taken directly from the balance sheet to calculate the current ratio.
Conceptually I agree with this current ratio calculation but in the real world, it appears that the current ratio will indeed be understated if the amount of accrued interest due within the next 12 months is not included in the liability denominator of the current liability equation.
Any takers on this relatively simple question?
Thanks,
MJG
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