I would like to set up PC+ to track mortgage payments on our church building. I am fairly new to accounting, so I want to make sure that I am setting this up right. As I understand it:
1. The building would be an asset. Would there be a balance in the COA
for this?
2. The mortgage is a liability. The balance would be the outstanding
principal right?
3. The payment and Interest are both expenses right?
Is this correct? If not how should we set this up, and what is the procedure when making a payment?
1. You are correct, the building is an asset and you would have a debit balance in the chart of accounts. Buildings are a depreciable asset if you depreciate those types of assets.
2. You are correct that the amount owed on the building is a liability with a credit balance.
3. The payments of a mortgage would consist of a debit to the liability account for the amount of principal (this lowers it) and the interest expense would be debited. The credit to cash. Only the interest shows up as an expense. The other is a reduction of the liability.
Would there be a beginning balance in the building asset account? If so is the balance the equity that you have in the building, or is it the appraised value of the property?
Typically if you went out and bought a building you would debit the asset building and credit the liability for the amount borrowed and probably credit cash for what the difference you are not financing. Fixed assets are valued at cost and not fair market value. Equity would result if someone donated the building or in your case by paying down the liability.
