# What is amortization in accounting

Best Answer:   I won't lay out the answer for you, but here's how to get it:

----------------- Cash Paid | Int. Exp. | Dec. in CV | CV

Jan. 1 '14

Jan. 31 '14

Feb. 28 '14

This is what the table should look like. On the first date (01/01), the only entry you should have is under carrying value (CV) for the total amount of the loan. From there, move to the second row.

You're given the amount of cash paid in the problem - \$4994 - and that will remain constant throughout the entire life of the loan, so you can fill it in for the next row too. Now, back to the second row.

To find your interest expense, you need to take your interest rate 6% and multiply it by your carrying value in the first row. But remember, the interest rate is for the entire year, so you're going to have to divide it by 12 to find the monthly interest rate. So: CV x [Interest Rate/12] = Interest Expense

The next column is your decrease in carrying value (Dec. in CV). To find that, you need to take your total cash paid for the month and subtract the amount of interest

for the month. The total cash paid is the \$4994, and you calculated the interest expense in the previous column. Basically, you're paying a lump sum to the people who are holding your loan, and each month a certain portion of that will go towards paying interest and the rest will decrease the carrying value of the loan. Does that make sense? So: Dec. in CV = Cash Paid - Interest Expense

Finally, you reach your carrying value column. Remember what I said before about some of your cash paying for the interest and the rest reducing the amount that is owed on the loan? To find your remaining carrying value, take the CV from row 1 and subtract the decrease in CV that you calculated in row 2. This will give you the month-end carrying value of the loan.

To get the third row, you will keep doing the same thing you did before. Fill in the cash paid, calculate your interest expense ([interest rate/12] x CV), find your decrease in CV (cash paid - interest expense), and then calculate your new carrying value (previous CV - decrease in CV).

It's not that hard, I promise. You'll get it.

Source(s): Senior in college, majoring in accounting.

Karrah · 3 years ago