Accounting for deferred financing costs

3. Accounting entries for deferred financing costs

Some examples of journal entries in accounting for deferred financing costs are presented below:

Incurred Deferred Financing Costs

Account Titles	Debit	Credit
Deferred Financing Costs	$75,000
Cash (Accounts Payable)		$75,000

Obtained Bank Loan (Year 0)

Account Titles	Debit	Credit
Cash	$1,000,0000
Bank Loan		$1,000,000

Recorded Amortization of Deferred Financing Costs (Year 1)

Account Titles	Debit	Credit
Debt Issue Expense	$12,710
Deferred Financing Costs		$12,710

This entry assumes that the company utilizes the effective interest rate method to amortize deferred financing costs. There will be similar entries for year 2-10 except that the amounts will be different (see the effective interest rate method amortization schedule above).

Make Annual Payment on Bank Loan (Year 1)

Account Titles	Debit	Credit
Interest Expense	$50,000
Bank Loan	$79,505
Cash		$129,505

This is an example of payment for the first year. The entries for years 2-10 will be similar except that the amounts of interest expense and bank loan reduction will be different (see the loan amortization schedule above).

Related accounting tutorials and articles

Not a member?

See why people join our
online accounting course:

Lecture Contents:

Ask a Question
Suggest a Topic

Do you have an interesting question or topic?
Suggest it to be answered on Simplestudies.com:

Ask Question