What is a mortgage loan?
A mortgage loan is a loan with a lien on real estate so that the lender has collateral until the loan is repaid. On any given date, the borrower is liable for the unpaid principal balance plus any accrued interest expense up to that point. It is common for mortgage loans to require monthly interest and principal payments that will repay the principal balance over a number of years.
In accounting, the borrower's balance sheet will report a current liability for 1) the principal payments that will be coming due within one year after the balance sheet date, and 2) any accrued interest that is owed as of the balance sheet date. (Interest for future accounting periods
is not reported as a liability.)
The borrower's balance sheet will also report a noncurrent liability for the difference between 1) the total unpaid principal balance owed as of the date of the balance sheet, minus 2) the principal payments that are reported as a current liability.
The lender's balance sheet will report a current asset and a noncurrent asset for the principal balance receivable and any accrued interest receivable. These amounts will be symmetrical to the amounts reported as liabilities on the borrower's balance sheet for the same date.
Learn Bookkeeping: Gain unlimited access to our bookkeeping seminar videos, bookkeeping proficiency exams, bookkeeping cheat sheet, visual tutorials, and more when you upgrade to PRO.Source: www.accountingcoach.com