Discussion:Principal/Interest Question
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| 18 September 2007 | |
| I have an "Old Timer" as he calls himself with a question that I have never heard before. On an installment note, the amortization schedule gives you a payment with princial and interest breakdown. He states that in the "old days" you could take the total interest for the life of the loan and divide it by the number of payments and record interest and corresponding principal based on this computation, so interest and principal recorded would be the same every year. Anyone ever heard of this? | |
| 18 September 2007 | |
| I am quite old but ostensibly I do not fit in those "old days" - new to me. | |
Michaelstar (talk|edits) said: | 18 September 2007 |
| No I have not. I believe that is mathematically impossible.
We all know that as principle payments are made (decreasing principle owed), corresponding interest payments decrease, thereby increasing principle payments applied - new math! | |
| 18 September 2007 | |
| I've seen it done, but its incorrect. It was in a small CPA firm in which the owner equated using amortization schedules each month to wasting time. His opinion was it was better to save 2 minutes a month per write-up client and do it wrong than vice versa.
The same guy got mad at me because I used spreadsheets for many of my workpapers. He said spreadsheets were a waste of time. I could not convince him that the spreadsheet only had to be set up once, with each subsequent use being a time saver. Finally I entered the work on a spreadsheet, then hand wrote it all on a columnar paper to keep him happy. | |
Death&Taxes (talk|edits) said: | 18 September 2007 |
| The first PA I worked for always set up prepaid interest: borrow 5K and payback $150x48 mos would be 2200 of Prepaid interest which he would journalize by adding to the loan and setting up the asset account....then he would amortize it using straight-line. "Interest Add-on" was what he called these loans for he would take the rate and convert this to a total add-on based on reasoning I have now forgotten. This way he did not have to worry about clients finding out how much interest they paid on loans. Remember, this was in the days before the PC and software. | |
Bushmaster (talk|edits) said: | 18 September 2007 |
| I have seen it before. TECHNICALLY, its not right. I have seen capitalized leases done this way and its easier for the A/P clerk to just enter the entire lease payment instead of breaking out interest and principal every month. No big deal if its not "material". this was for a non profit hospital though so it didn't matter tax wise. | |
| September 18, 2007 | |
| (Deleted...D&T already posted about the good ole' Prepaid Interest account.) | |
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