USA 2 ways to show mortgage payment

[dcromley]

1st way to show mortgage payment:
Debit Mortgage (liability)
Credit Cash
Nothing will show up in the income/expense statement.

2nd way to show mortgage payment:
Debit Mortgage Expense (expense)
Credit Cash
This will show up in the income/expense statement.
Then a closing entry:
Debit Mortgage (liability)
Credit Mortgage Expense (expense)

Question: is the 1st completely wrong or just deficient? If you answer nicely, I have a few more questions. TIA, Dave

 

[bklynboy]

Both are wrong as mortgage payment is part principal and part interest. The principal portion is only balance sheet.

Record at date mortgage is issued
Debit Real Estate Asset
Credit Mortage Loan Liability

Record monthly payment of mortgage
Debit Mortgage Loan Liability
Debit Interest Expense
Credit Cash

 

[dcromley]

Thanks for the reply.
I forgot to mention that this is a no-interest loan

So your
Record monthly payment of mortgage
Debit Mortgage Loan Liability
[Debit Interest Expense - none]
Credit Cash
doesn't appear on the income/expense statement.

Why would it be wrong to
Debit Mortgage Loan Expense
Credit Cash
Then a closing/clearing entry is
Debit Mortgage Loan Liability
Credit Mortgage Loan Expense

 

[Triest123]

Thanks for the reply.
I forgot to mention that this is a no-interest loan

So your
Record monthly payment of mortgage
Debit Mortgage Loan Liability
[Debit Interest Expense - none]
Credit Cash
doesn't appear on the income/expense statement.

Why would it be wrong to
Debit Mortgage Loan Expense
Credit Cash
Then a closing/clearing entry is
Debit Mortgage Loan Liability
Credit Mortgage Loan Expense

Why would it be wrong to
Debit Mortgage Loan Expense
Credit Cash
Then a closing/clearing entry is
Debit Mortgage Loan Liability
Credit Mortgage Loan Expense

=> Your concept for the above entry is completely wrong.

The drawdown of the mortgage loan is NOT the revenue / income of your company.
So, the repayment of the mortage loan cannot be treated as the expense
of your company.

If you repay the mortgage loan, you just have to "Dr Mortgage Loan Cr Cash"

 

[dcromley]

So, the repayment of the mortage loan cannot be treated as the expense of your company.

Thank you for addressing my question so directly. I would welcome any further explanation or references from you or anybody.

 

[bklynboy]

Thanks for the reply.
I forgot to mention that this is a no-interest loan

OK. Note that even under a no interest loan you would need to record imputed interest under GAAP. You would need to utilize a market interest rate and still recognize periodic interest expense as well. I believe IFRS has the same requirement.