When a business acquires a loan there are typically closing costs involved. Generally Accepted Accounting Principles (GAAP) require these financing costs to be amortized (allocated) over the life of the loan. There are several principles the reader needs to understand to properly calculate and assign these costs to the financial statements.
Amortization of Financing Costs
Accrual based accounting requires financing costs to be amortized (allocated) over the expected life of the financial instrument or loan.