[Park Soon-woong's Scale-Up Accounting Tutoring] "Please Change It to Lon...

[Korea Lecturer News, Columnist Park Soon-woong] “Please change it to long-term borrowings,” said the staff member from Company D. “It’s the CEO’s instruction.”

I was momentarily taken aback. A tax accountant is not someone who simply follows instructions, but a professional who makes judgments based on standards.

What surprised me even more was the reason behind it. The company was undergoing financial due diligence for investment, and the investor pointed out that there were too many short-term borrowings. The issue was that this single comment immediately led to a request to change the accounting treatment.

So, what is the problem with having too many short-term borrowings? In accounting, current liabilities are obligations that must be repaid within one year. These include bank loans and accounts payable. Current liabilities represent the scale of cash outflows the company must handle within the next year.

On the other hand, funds expected to come into the company within one year are current assets. Typical examples include accounts receivable from customers and inventory that will be converted into cash through sales.

The indicator that compares these two items is the current ratio. It can be expressed simply as:

Current Ratio = Current Assets ÷ Current Liabilities

For example, if current liabilities are 1 million KRW and current assets are 500,000 KRW, the current ratio is 50%. This means that only about half of the funds needed to repay obligations next year are prepared. The current ratio, even before profitability, shows a company’s ability to endure. A low ratio indicates weak short-term repayment capacity.

Company D was actually close to this situation. As it was in its early stage, it had not yet generated significant revenue and relied on borrowings for operating funds. Its current ratio was around 40%, and the main cause was a 400 million KRW loan obtained from a bank.

This loan had a maturity of less than one year, so it was classified as a short-term borrowing and included in current liabilities. If it were reclassified as a long-term borrowing, current liabilities would decrease, making the current ratio appear improved. Since the current ratio plays an important role in loan and guarantee evaluations by financial institutions, as well as in government support project assessments, the CEO attempted to change the accounting classification.

The CEO’s side explained:

“This loan is highly likely to be extended annually. In substance, it can be repaid after one year, so it should be considered a long-term borrowing. Other companies treat it that way.”

However, such circumstances alone do not justify classifying it as a long-term borrowing. If the extension is not contractually guaranteed, it cannot be treated as long-term based merely on expectations or common practices. The expectation of extension is a managerial judgment, not a basis for accounting classification. Financial institutions regularly review a company’s financial condition and creditworthiness to decide whether to extend loans. Banks are not charitable organizations.

Financial statements are not a diary that records the wishes of management.

The CEO must explain revenue projections and cash flow through a business plan and prove them through execution. What should be requested from a tax accountant is not instructions, but professional advice.

Technically, reclassifying short-term borrowings as long-term borrowings in the books is not difficult. However, the responsibility for any distorted financial statements ultimately lies with the company.

Investors look not only at the numbers, but at the structure behind how those numbers are created. The CEO’s role is not to change the numbers, but to explain the structure. I wish Company D success in its scale-up journey.

Columnist Profile

Columnist Park Soon-woong is a Certified Public Accountant (CPA) who graduated from the Department of Accounting at Sungkyunkwan University. He has worked at Samil PwC and Daejoo Accounting Firm, providing audit and advisory services, and has handled accounting issues across the full lifecycle—from early-stage startups to IPO companies.

He is currently a partner at Hanmi Accounting Firm and is actively engaged in accounting lectures and mentoring for entrepreneurs.

His major publications include “Startup Accounting in 30 Minutes” (2021) and “Scale-Up Accounting in 30 Minutes” (2025).

주요

기사

박순웅 칼럼니스트