What is an amortization schedule?
An amortization schedule lists every scheduled payment on an amortizing loan (a business loan, mortgage or equipment finance). For each payment it shows:
- Payment date and number
- Total payment
- Interest portion
- Principal portion
- Remaining balance
How the payment is calculated
For a fixed-rate loan with equal payments:
Payment = P × r ÷ (1 − (1 + r)^−n)
where P is the loan amount, r the periodic interest rate and n the number of payments. Each period, interest = balance × r, and principal = payment − interest.
Example
A $10,000 loan at 12% a year (1% a month) over 12 months has a monthly payment of about $888.49.
- Month 1: interest $100.00, principal $788.49, balance $9,211.51
- Month 2: interest $92.12, principal $796.37, balance $8,415.14
- Month 12: interest about $8.80, principal about $879.69, balance $0
Interest falls and principal rises with every payment.
Accounting for loan payments
Each payment: debit interest expense (interest portion), debit loan payable (principal portion), credit bank. The schedule also tells you how much of the loan is a current liability (due within 12 months) and how much is non-current.
Why it matters
- Shows the true cost of borrowing.
- Helps compare loan offers and plan early repayments.
- Keeps the loan balance in your books matching the lender's statements.