AccountingBLOCK

When setting up the current portion of long term debt and an amortization schedule has been created and basically the monthly payments are the same, month to month, do you record as the current portion of long term debt the total payments (principal & interest) due in 12 months (or the operating cycle whichever is longer) or do you record the principal portion due in 12 months which would basically require updating this current portion monthly, which is fine I just want to know from a GAAP perspective which is correct. I always thought you record the total payments due in 12 months (or operating cycle) which does include principal & interest but I think this gives a more accurate picture to external viewers of the financial statements of what the entity is legally on the line for at that balance sheet date.

Especially for long-term debt, it is important to determine if the stated interest rate for the debt exceeds or discounts the prevailing market rate. If the rate is the same, it may not be necessary to use the net present value method to calculate the total amount of principal and interest over the life the long-term debt. Keep in mind the value of this debt today is worth more than its value at least a year from now, especially when considering inflation, constant dollar evaluations, consumer price indices, etc.

So you will always carry the amount of principal and interest as current, then amortize the amount of principal with interest payment. Combined this will reduce the carrying value of the debt as it appears upon the financial records.

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Owner Zindah, Inc.
A.A Accounting
B.S Accounting

In my opinion you would have to show the interest plus the principal on your balance sheet as the true amount of debt outstanding, wouldn't you have to debit your bank with the total repayment and credit the principal and interest of the debt?