Introduction to Finance

Introduction to Finance

Classification of Items

Rent is classified as an expense.

As cost is not paid yet, it is still due, it must be classified as liability.

As Tim has 'borrowed' money and will have to pay it back, the amount is categorized as liability. On the other hand, when Tim borrowed the money and put it in bank, it was categorized as asset.

The interest Tim pays is categorized as an expense in income expense and the principle amount remaining to repay is categorized as liability (short term or long term loan) in the balance sheet.

As Tim owed $2,450 ...