Accounting › Section L · Long-term liabilities › Topic L.2
The effective-interest method
A loan or bond costs its borrower interest at the market rate, even when the cash payments say otherwise. The effective-interest method charges that true rate to the balance still owed each period, and an amortisation table lays out every number the journal entries will need.
In this topic
- What amortisation means
- Instalment notes
- Worked example: a note amortisation table
- The method for bonds
- Discounts: the carrying value rises
- Worked example: amortising a discount
- Premiums: the carrying value falls
- Worked example: a premium and a final adjustment
- Checking a table
- The straight-line alternative
- Common mistakes to avoid
- Key takeaways
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