General doubt that I got from question 57.2 C). On the balance sheet, do we consider an interest payable on a Long-term Loan to be equal to the monthly payment of interest multiplied by the number of months since the last payment, even if this payment is only done anually? If so, why?
Hello Afonso,
That happens due to the concept of accrual based accounting. In the example of exercise 57, the interests on the long-term loan are paid annually, in November, but that does not mean those are all costs from November. You have an interest cost every month because you recognize the interest cost from that month, even if the cash flow has not occurred yet. In this exercise, you will have interest costs from the long-term loan every month, but the cash flow from the accumulated costs of the 12 months only occurs every November.
Good study!
That happens due to the concept of accrual based accounting. In the example of exercise 57, the interests on the long-term loan are paid annually, in November, but that does not mean those are all costs from November. You have an interest cost every month because you recognize the interest cost from that month, even if the cash flow has not occurred yet. In this exercise, you will have interest costs from the long-term loan every month, but the cash flow from the accumulated costs of the 12 months only occurs every November.
Good study!
Makes sense! Thanks