A line of credit is a revolving loan. A business that wants ready access to cash can set up, say, a $4 million line of credit backed by company assets. If the company borrows $4 million, then pays it off, it can borrow against the line of credit again instead of taking out another loan. If the company taps the line of credit, the loan goes onto the balance sheet.
Lines Are Liabilities
The balance sheet is an equation. One side shows the company's assets, and the other shows the liabilities and the owners' equity. If the company uses its line of credit to borrow, say, $2 million, the debt goes down as a current liability. It's current because lines of credit usually get paid back within a year. If it keeps some of the $2 million on hand, that money goes down as an asset.
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