Interest on Unpaid Bills
(Montreal, Quebec, Canada)
Where To Record Late Fees and Interest Charges
Just starting to learn the basics of bookkeeping. I am learning how to enter expenses.
If the company does not pay a bill on time and there is interest on the next bill does that go into the same account or does it get seperated out to interest and bank charges?
For example: Company A did not pay their October bill. In November when they get their next bill they are charged for both October and November and charged $2.50 for interest on the unpaid bill. Company A pays the entire bill in November.
When I create a payment for it in Simply Accounting, do I put the interest charge as a Telephone Expense or do I put it in Interest and Bank fees?
If the interest is to CRA or the Minister of Finance, you definitely need to track this in a separate account as interest and penalties are not tax deductible.
For other interest and late charge fees, it is helpful to record the fees to a separate account/subaccount so the business owner can see how much it is costing him/her by not paying bills on time.