How Raffi’s Kids Should Report the Mortgage, Essay Example

Accounting

The balance sheet is a picture of the financial condition of Raffie’s kids at the present moment. The mortgage is a receivable to the creditor and it is demonstrated as a payable on the Raffie’skids balance sheet. Only the transactions which are presently being conducted can be demonstrated on the balance sheet. Payments which have not yet occurred cannot be posted on thebalancesheet. The formula which is essential to the balance sheet is:

Liabilities = Assets- Equity

The annual mortgage interest expenditure, which is the interest which is provided as payment on the mortgage would appear on the income statement and not on the balance sheet (Albrecht 458). The interest expenditure on the mortgage is an operating expenditure which appears on the income statement. The principal payment disbursement which diminishes the mortgage would be demonstrated on thecashwhich flowsstatement in the section labeled finance. This entry would demonstrate a decrease in cash flow. The balance sheet would demonstrate the mortgage being decreased by the quantity of the principal payment disbursement (Albrecht 458).

The mortgage is an inherent credit balance which infers that in accounting entries, credits which are posted against the liability account would cause the liability account to increase (Albrecht 50). The principal payment of the mortgage would not be incorporated on the income statement. The principal disbursement represents a decrease in liability, which would be classified a mortgage payable or notes payableon the balance sheet. The principal disbursement would be detailed as cash outflow which would be listed in the statement of cash which flows (Albrecht 35).

The twenty thousand dollars which is hoped to be paid next year cannot be listed on the balance sheet, income statement of statement of cash which flows ( Albrecht 458). It is hoped that this event will take place next year. The twenty thousand dollar transaction cannot yet be recorded because it has not yet taken place.

Works Cited

Albrecht, W. Steve, Earl K. Stice & James D. Stice. Financial Accounting. Mason Ohio: Southwestern Cengage Learning.