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

Recording Interest - Essay Example Also, when the $60,000 loan was made, it had to be a personal loan because there was still no business to record the amount. But when the business begun, the $60,000 was recognized as a start-up capital and therefore, it should be recorded as part 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 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 â€Å"and and the remainder of the payment reduces the principal amount of the liability. As the amount owed is reduced by each payment, the portion of each successive payment representing interest expense will  decrease,  and the portion going toward repayment of principal will  increase (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 money the balance sheet when in fact it came from a