Recording Interest Essay Example | Topics and Well Written Essays - 250 words

Recording Interest - Essay ExampleAlso, when the $60,000 lend was made, it had to be a personal loan because there was still no business to lay the amount. But when the business begun, the $60,000 was recognized as a start-up capital and therefore, it should be recorded as stir up of the start-up capital.The proper accounting of the $60,000 loan is to record it as part of Current Assets (cash) in the asset portion and liability (loans) in the balance sheet of Ontime obstetrical delivery Service. It follows then that interest payment should be recognized by the business along with the repayment when the $60,000 is recorded as loan. The way the interest payment should be recognized in the book is through interest expense and and the remainder of the payment reduces the principal amount of the liability. As the amount owed is reduced by from each one payment, the portion of each successive payment representing interest expense willdecrease,and the portion going toward repayment of principal willincrease (Williams et al, 2005). Failing to record the $3,200 as interest payment would render the accounting of Ontime Delivery Service inaccurate because the $60,000 in effect will appear to be personal funds the balance sheet when in fact it came from a