QuestionJuly 29, 2025

Which one of the following amounts increases each period when accounting for long-term notes payable? Reduction of principal Interest expense Principal balance Cash payment

Which one of the following amounts increases each period when accounting for long-term notes payable? Reduction of principal Interest expense Principal balance Cash payment
Which one of the following amounts increases each period when accounting for long-term notes payable?
Reduction of principal
Interest expense
Principal balance
Cash payment

Solution
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Answer

Reduction of principal Explanation 1. Identify Components of Long-term Notes Payable Long-term notes payable typically involve periodic payments that include both interest and principal components. 2. Analyze Interest Expense Interest expense is calculated on the remaining principal balance. As the principal decreases, the interest expense decreases each period. 3. Analyze Principal Reduction The reduction of principal increases each period because as the interest portion decreases, more of the payment goes towards reducing the principal. 4. Analyze Principal Balance The principal balance decreases with each payment as part of the payment reduces the principal. 5. Analyze Cash Payment Cash payment remains constant if it's an installment loan with fixed payments.

Explanation

1. Identify Components of Long-term Notes Payable<br /> Long-term notes payable typically involve periodic payments that include both interest and principal components.<br /><br />2. Analyze Interest Expense<br /> Interest expense is calculated on the remaining principal balance. As the principal decreases, the interest expense decreases each period.<br /><br />3. Analyze Principal Reduction<br /> The reduction of principal increases each period because as the interest portion decreases, more of the payment goes towards reducing the principal.<br /><br />4. Analyze Principal Balance<br /> The principal balance decreases with each payment as part of the payment reduces the principal.<br /><br />5. Analyze Cash Payment<br /> Cash payment remains constant if it's an installment loan with fixed payments.
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