If I buy a truck for $45,000, finance it over 5 years at 4.5%, my total Accounts Payable amount to be credited would be $55,125 ($45,000+ 10,125 in interest). The amount debited would be $45,000 in the Truck (asset) account, but I am not sure where the $10,125 goes. Shouldn't be Interest Expense, because it is for five years.

I'm stumped.


Frowning in Farmingdale

When you purchase the truck the journal entry will be:
Debit Vehicles - truck for 45,000
Credit Notes Payable for 45,000

At the end of the year iou will calculate the interest due for the truck then the journal entry will be: (For a yearly payment)
Debit Interest Expense for the amount of Acrcued interest.
Credit Interest Payable for the amount

When the payment is made the journal entry will be:
Debit Notes Payable for the amount of Principal paid
Debit Interest Payble for the amount of Accrued interest
Debit Interest Expense for the Difference
Credit Cash for the amount paid.

For a monthly paiyment at the end of the month the journal entry will be:
Debit Notes Payable for the amount of principal paid
Debit Interest Expense for the amount of Interest Paid
Credit Cash for the total amount paid

All of your interest paid will go through your Interest Expense Account