Loan amortization schedule
In one sentenceA table showing, for each installment, its date and amount, how much of it is financing cost and how much is principal, and the remaining balance after it until the financing ends.
Simply put
In financing on a declining balance, each month's cost is calculated on the remaining balance only. That is why the cost is large in the first installments and then shrinks, while the portion repaying the principal grows.
The accountant needs it to record each installment correctly: the financing cost is an expense, and the principal portion reduces the liability. From it, the amount due within a year (a current liability) is separated from the rest.
Worked example
Short financing of 12,000 SAR repaid in 3 equal monthly installments at a cost of 1% per month on the remaining balance (a hypothetical rate for illustration). The installment is 4,080.27 SAR.
First installmentCost 120.00 + principal 3,960.27, remaining 8,039.73
Second installmentCost 80.40 + principal 3,999.87, remaining 4,039.86
Third installment (4,080.26 due to rounding)Cost 40.40 + principal 4,039.86, remaining 0
Total financing cost = 120.00 + 80.40 + 40.40240.80 SAR
Formula: Month's cost = remaining balance × monthly rate; principal = installment − month's cost
Don't confuse it with
AmortizationAmortization allocates the cost of an intangible asset over its life, while the repayment schedule splits the installments between principal and financing cost.