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Super simple example:

  • You take a loan out in January of $50,000.
  • $10,000 principal + $1,000 interest of the loan will be due back over the course of the 12 months ending the year

If you were making a balance sheet to reflect this, should short term notes payable include interest? I'm finding conflicting advice on this. In my head if I DON'T include interest, the balance sheet makes a lot of sense, it looks like this:

Cash   50,000        Short Term Notes Payable  10,000
                     Long Term Liabilities     40,000

It balances. If however, interest IS included, then how does the $1000 interest balance out? I.e., this is off balance below

Cash   50,000        Short Term Notes Payable  11,000
                     Long Term Liabilities     40,000
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No -- future interest is not reflected on a balance sheet. You don't owe the interest yet. For example, you might pay off the loan principal early. Similarly, you don't include money you expect to receive from selling a product.

And as you point out in the question, there is nothing on the Assets side to balance it against.

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