Finance Costs
Also called: Interest and Finance Charges
A group, no postings. It totals the cost of borrowing: Interest Expense, Interest on Lease Liabilities and finance-related Bank Charges, on the Profit and Loss statement.
In detail
Finance Costs groups the price of borrowed money: interest on bank loans and overdrafts, interest on lease liabilities under NFRS 16, and bank charges tied to borrowing such as loan processing fees. It posts nothing; the ledgers beneath it are debited by Journal Entry when interest is charged or paid. The Profit and Loss shows the group below operating profit so a reader can judge the business before and after the cost of debt, and banks compute interest cover from it. Interest paid to a bank needs no TDS; interest paid to an individual or a related party must have TDS deducted, 15 percent in most cases. Principal repayments never pass through this group.
Formula
Finance Costs = Interest Expense + Interest on Lease Liabilities + Bank Charges (finance); Interest cover = Operating profit / Finance Costs
How to record it in BRAccount
- 01Go to Accounts Setup > Chart of Accounts, expand Expenses, then Finance Costs.
- 02Post interest with Invoicing > Journal Entry to Interest Expense or Interest on Lease Liabilities.
- 03Open Financial Reports > Profit and Loss Statement and read the group below operating costs.
- 04Reconcile the total with the bank's interest statements for the year.
When to use it
Do not post here. Loan interest debits Interest Expense; lease interest debits Interest on Lease Liabilities.
Example from the demo books
Finance Costs for Shrawan total Rs 26,750: loan interest Rs 20,000 plus lease interest Rs 6,750.