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A mortgage is an interest in a property that is transferred from a borrower (the mortgagor) to a lender (mortgagee) to as security for a mortgage loan. If the lender does not repay the loan then the lender can under certain circumstances take the property.
As we have a series of periodic payments from the lender to the borrower and a periodic compounding interest rate, the mortgage payment can be regarded as an annuity.
As regular payments will clear a loan balance over the term, the present value (PV) of the payments must be equal to the value of the loan. It follows that the remaining balance on an loan can be calculated by calculating the present value (PV) of the outstanding loan repayments.
This accounting for capital leases calculator will help a business to produce the monthly accounting journals required to record capital leases.
The rental payments on a capital lease are split between principal and interest when posted to the accounting records. As the lease liability reduces each month the interest will reduce and the principal / interest split changes.
Capital lease accounting deals with the treatment of an asset rented by a business under the terms of a capital lease agreement.
A capital lease or finance lease is an agreement between the business (lessee) to rent an asset from a lessor. The lessor (lease company, finance company etc.) owns the asset, and the business rents the asset in return for a periodic rental payment. The business never owns the asset, at the end of the term it is returned to the lessor or a secondary period of rental is entered into.
It is important for a business to maintain the correct level of debt vs equity. The ability of a business to take on debt is limited by it’s ability to pay the interest charges and make the repayments.
However, debt should not be considered a bad thing, if used correctly if can greatly improve the return to the owners of the business.
