An amortization schedule is a schedule that breaks the installments of a loan into interest and principal in a tabular form. Amortization can be prepared for leases, long-term loans, and even for capital investments in debt instruments like bonds. The purpose of preparing an amortization schedule is to track the progress of payments and assess the amount of liability to be classified as a current liability and long-term liability.
Assume a company leases a car for $12,000 that has an effective interest rate of 9% and a yearly installment of $2168 for 8 years. The amortization schedule will be as follows:
|
Year |
Installment |
Interest @ 9% |
Principal |
Balance |
|
0 |
0 |
|
- |
11,999.49 |
|
1 |
2168 |
1,079.95 |
1,088.05 |
10,911.44 |
|
2 |
2168 |
982.03 |
1,185.97 |
9,725.47 |
|
3 |
2168 |
875.29 |
1,292.71 |
8,432.77 |
|
4 |
2168 |
758.95 |
1,409.05 |
7,023.72 |
|
5 |
2168 |
632.13 |
1,535.87 |
5,487.85 |
|
6 |
2168 |
493.91 |
1,674.09 |
3,813.76 |
|
7 |
2168 |
343.24 |
1,824.76 |
1,988.99 |
|
8 |
2168 |
179.01 |
1,988.99 |
0.00 |
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