Not all of these costs are considered a function of financing. * Legal Processing Fee – legal costs for attorney charges * Court Recording Fee – Often loan documents are recorded at the circuit court requiring a fee to complete.
Amortization expense code#
* Uniform Commercial Code (UCC-1) Costs – A state recording cost assigning collateral to the lender usually it is no more than $100. * Lender’s Processing Charge – a flat dollar amount * Loan Origination Fee – usually stated as a percentage of the loan principal Most loans are straight forward and identify the loan costs in the terms and conditions section of the commitment letter.
Financing costs are initially recorded as an intangible asset.Īccountants and bookkeepers must be careful as to what constitutes financing costs. Other assets comprise mostly intangible assets. The asset side of the balance sheet is divided into three major groups of assets current, fixed and other. The second step is to amortize the total costs over the life of the loan. The first step is to record the cost to the balance sheet as an intangible asset. GAAP requires a two-step process to address this situation. However, a $100,000 loan with $4,000 of fees will negatively impact the profit for a small business as reported on the interim financial statement. For a $10,000 loan two hundred to six hundred dollars in fees will not greatly affect the income statement results. Often these fees range from two to six percent of the loan’s principal. When a loan is acquired lending institutions have fees and loan costs they customarily pass to commercial enterprises. Basically, the information should be fairly stated in the financial reports. Basic Principle of AmortizationĪccounting is the process of recording economic activity and reporting this information in a timely and accurate manner. The final section is an in-depth example and model to follow. It is written for bookkeepers, novice accountants and small business owners. This lesson explains the basic business principles of amortization of financing costs, organization of information, reporting and interpretation. There are several principles the reader needs to understand to properly calculate and assign these costs to the financial statements. Generally Accepted Accounting Principles (GAAP) require these financing costs to be amortized (allocated) over the life of the loan.
When a business acquires a loan there are typically closing costs involved.
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