When Paying the mortgage on the church building, what gets debited and credited?
Currently I would credit the checking account and debit the expense account (Mortgage Pmt.). What happens to the liability account (Mortgage Note)? Thanks for your help.
Question on Paying the Mortgage
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Zaphod
- Program Development
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normally, when you enter a mortgage, you enter the total principle in the liability. When you pay that, you credit the bank for the amount of the check, then debit the liability the amt that applies to the principle, and debit the expense account for the amount of the interest paid. Total debits and total credits (in this case, the one) should then be equal.
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Matt
- Authorized Teaching Consultant
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The answer depends on whether you want the full amount of the mortgage payment to show as an expense on your income statement, or just the interest portion of the payment. Some churches want the full amount to show as an expense because that's how they budget for it.
If you want the full amount of the payment to show in your mortgage payment expense account, you will need to do two entries. The first would be to credit the checking account and debit the expense account as you describe for the full payment amount. The second would be to debit the Mortgage Note liability account and credit an equity account for the principal amount of the payment. The equity account credited should be the same account that the mortgage payment expense account is set up on your chart of accounts to close into.
If you just want the interest portion of the payment to show as an expense (which is the preferred method, accounting-wise) then your entry would be as follows:
DR Interest Expense - Mortgage
DR Liability - Mortgage Note
CR Checking Account
If you want the full amount of the payment to show in your mortgage payment expense account, you will need to do two entries. The first would be to credit the checking account and debit the expense account as you describe for the full payment amount. The second would be to debit the Mortgage Note liability account and credit an equity account for the principal amount of the payment. The equity account credited should be the same account that the mortgage payment expense account is set up on your chart of accounts to close into.
If you just want the interest portion of the payment to show as an expense (which is the preferred method, accounting-wise) then your entry would be as follows:
DR Interest Expense - Mortgage
DR Liability - Mortgage Note
CR Checking Account