Principal Liability
Principal liability has both short term and long term balances. The short term balance reflects the principal portion which is due within the next 12 months and the long term portion reflects the principal balance that is due beyond the next 12 months. Altogether, the principal liability will show the total lease obligation at a point in time.
A debit in the principal liability is associated with the payment that has been made to offset the principal due, which could be shown by the following journal entry:
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Dr. Principal Liability |
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Cr. Cash |
A debit in the principal liability will reduce the short term and long term principal balance (i.e., it will reduce the total lease obligation). From the previous example, to record the rental payment of $26,500, which consists of $4,735 as interest expense and $21,765 as principal repayment, ABCD will record the following entries:
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Dr. Accrued Liability |
$4,735 |
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Dr. Principal Liability |
$21,765 |
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Cr. Cash |
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$26,500 |
See also:
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