????????????
?
Interest paid on loans must be deducted from your net profit.
Say you take a loan of ?5,000 and repay it in 60 payments of ?167.? Your total repayments are therefore ?10,020.? ?5,000 is called the capital amount and ?5,020 is finance charges.
Each time you pay ?167, it includes ?83 capital and ?84 interest.? The interest portion must be deducted from the total loans less all repayments to show how much you will have to pay to settle the loan on the balance sheet date.
Usually you can phone your loan provider and ask them how much you would have to pay today to settle the whole loan. It should be more than the total cash received from the loans less the repayments and is the amount you should show in the balance sheet.? The rest is interest that you have paid.
The interest is shown as the very last expense before your net profits and dividends (if you have any) and will reduce your net profits.
Your balance sheet will balance because you have adjusted long term liabilities and accumulated profit by the same amount. |