How to Record a Mortgage Payable

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Many businesses looking to buy real estate don't have enough funds for an outright purchase, but can opt for mortgages instead. A business mortgage is similar to a personal mortgage in that money is loaned with a long-term repayment schedule requiring monthly payments of principal and interest. For the business to properly account for the real estate purchase, the mortgage payable must be recorded on the general ledger.

Things You'll Need

  • General ledger
  • Mortgage documents
  • Create a mortgage payable account in the liability section of the general ledger. The balance in this account will reflect on the balance sheet as a liability (or payable).

  • Set up a mortgage interest expense account in the expense section of the general ledger. The balance in this account will reflect on the income statement as an operating expense.

  • Establish building and accumulated depreciation-building accounts in the asset section of the general ledger. The balance in those accounts will reflect on the balance sheet in the asset section.

  • Put a depreciation expense account (if you do not already have one) in the expense section of the general ledger.

  • Record the entire principal amount of the mortgage in the mortgage payable account and the building asset account.

References

  • “Principles of Accounting”; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
  • Photo Credit Stockbyte/Stockbyte/Getty Images
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