Accounting / July 18, 2018 / Willow Mccoy
Lenders and investors want to see that your business is well-balanced with assets and liabilities, has positive cash flow, and will have capital to make expected repayments.
The total amount paid in rentals over the term is 4 x 3,100 = 12,400. This amount can be split into the original amount financed of 10,500, known as the principal amount, and the interest charge of 12,400 – 10,500 = 1,900. Under capital lease accounting, the rentals are paid to clear the capital lease principal and interest over the term of four years.
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