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Setting Up a Mortgage and Monthly Principal/Interest Payments

DShanDShan Member Posts: 2

Hi All,

I am trying to set up a mortgage and payments as at date and move forward.
I am having some issue with this.
These are the following steps I've deduced I need to follow:
1. need to setup an Asset account with value $xyz at date 1 - April
2. need to set up a long term liability account $xyz - $100,000
3. need to setup principal monthly payment
4. need to setup interest monthly payments
5. need to have this balanced

Can anyone provide guidance?

Thanks

in Accounting Technical Support

Comments

  • MikegMikeg Member Posts: 995 ✭✭✭

    DShan,
    Are you booking a building purchase? If so, you would debit Fixed assets - Building (Cost) credit Long Term Liability Mortgage Payable and you would need another credit. I'm assuming that the building was not 100% financed so the cash at settlement came from somewhere. Either owners contribution or cash in the account. As payments are made, you would post the gross payment against the liability. Debit mortgage and credit cash. On a frequency basis you would like, you would debit interest expense and credit mortgage liability. That would tie out your principal balance.
    Not exactly sure what you mean by set up monthly P&I. Since these amounts change every month (even if payment is fixed) , I think it would be easier to just do a journal entry to expense the interest piece.
    Mike G, CPA
    www.mgfinancial.net

  • DShanDShan Member Posts: 2

    Hi Mike, thanks.

    The situation is the building was purchased via 15 yr mortgage 3 years ago. I am however now looking at an accounting solution.

    How do I add this building with current value to wave? Do i just add a journal entry as income?

    What do I put in those fields for the asset

  • MikegMikeg Member Posts: 995 ✭✭✭

    DShan,
    I can only speak to the US since that is what I'm familiar with (tax and accounting). You do not typically post assets at fair market value. So the first step would be to have the accounts already created in your chart of accounts. So let's say for example, 3 years ago you bought the building for 300,000 and had a 15 year mortgage of 275,000. For ease, let say you did not depreciate the building in the past. You now have a renter and want to keep track. The mortgage is now 235,000 since you have been making payments. The entry would be Debit Building 300,000 (cost) Credit Mortgage Payable 235,000 and Credit Owners Equity 65,000. If you have depreciated the building in the past then the cost would remain the same you would add accumulated depreciation and adjust owners equity.
    Mike G, CPA
    www.mgfinancial.net

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