Long-term Liabilities - Mortgage Payable

Long-term liabilities

The most common long-term liabilities will, of course, be your company's mortgage.

Mortgage payable

If the company owns the building in which it operates and carries a mortgage against it, you will record the liability for the mortgage in this category on the balance sheet. The mortgage is originally recorded like this:

 

DR Building                         $XXX

CR Bank (for deposit)                     $XXX

CR Mortgage payable                      $XXX

 

When mortgage payments are made, they are usually a combination of interest and principal. A payment would be recorded like this:

 

DR Mortgage payable (for principal portion) $XXX 

DR Interest expense (for interest portion)   $XXX

CR Bank (for entire payment)                                $XXX

 

Frequently, small businesses - for ease of bookkeeping ­ apply the entire payment to either interest or mortgage payable, and the accountant adjusts the mortgage balance at the end of the year to correspond with the mortgage statements from the lender. Although this method is easier, it creates a misrepresentation on your balance sheet until it is corrected.