Accounting treatment of finance costs
When incurred:
Borrow: finance costs
Credit: bank deposits (payment of interest on short-term loans, bank charges, etc.)
Interest payable (accrued interest on short-term or long-term borrowing)
At the end of the period carried over to the current year's profit:
Borrow: the profit of the year
This is the first time that a financial cost has been recognized as an expense. >Credit: finance costs
What are finance costs?
Finance costs are the costs incurred by an enterprise to raise the funds required for production and operation, including but not limited to interest expenses (less interest income) incurred during the production and operation of the enterprise, financial institution fees, exchange gains and losses (some enterprises, such as merchandise distribution enterprises, insurance companies for separate accounting, not included in the finance costs), and cash discounts incurred by the enterprise or cash discounts received.
It should be noted that: interest expenses incurred during the preparatory period, should be included in the start-up costs; for the purchase or production of assets to meet the conditions for capitalization should be capitalized borrowing costs incurred in the "construction in progress", "manufacturing costs" and so on. account.
"Finance costs" account belongs to the profit and loss account, the balance of this account should be transferred to the "profit for the year" account at the end of the period.
In the income statement, a separate "finance costs" project to reflect the financial costs incurred by the enterprise, and according to the "finance costs" account of the amount incurred, that is, the balance carried forward at the end of the period to analyze the filling.
What are bank deposits?
Bank deposits are money stored in the bank and are an integral part of monetary funds.
Bank deposits are accounts in the nature of assets, where debits indicate increases and credits indicate decreases, and the closing balance is on the debit side.