While I could take the entire loan (principal + cost i.e. interest) and divide over the period, the reality is that you pay more interest at the start of the loan and less principal, and as time goes on there is a small shift from payment to payment as to the amount that is principal and that which is interest.

If I hold the loan for its entire duration (i.e. I pay off the car) then the averaged interest (para above) is a wash, but if I sell the asset and must pay off the outstanding principal, the interest calculations will therefore be off. This also can have tax implications if the interest is deductible (business use is, here).

To adopt the Cost Accrual method, we would need 3 accounts instead of 2 - Outstanding Principal, Principal Payment Accrual Account, and Interest Paid accrual account. We would then also need the Interest and the Principal Payment amounts to be calculated using the amortization formula instead of simply dividing the accrual amount by the number of periods.

I'll be adding this to my personal TODO programming list, but it will be a medium to low priority for my projects list, so if someone else has time to take a swing at this...

]]>