Mortgage interest is that accruing upon the unpaid portions of the purchase money represented by notes secured by mortgages or provided for in a contract. The simplest form in which interest on mortgages appears is shown in the mortgage coupon of Form 43 ( Section 117).

In connection with interest on mortgage notes, two separate and distinct facts must be noted: first, that the interest becomes due at a fixed time, and second, that this interest is paid to the holder of the mortgage. Revenue account is therefore entitled to be credited when the interest falls due, but the mortgagor is not credited until he makes the payment, and it is a well-known fact that interest on mortgages is not always paid promptly.

In order to record these two phases of the transaction, it is necessary to open in the general ledger two accounts which may be designated as follows:

1. Mortgage Interest Receivable

2. Overdue Mortgage Interest Receivable

All interest as it accrues, i.e., as it becomes fully earned, is credited to the first, and debited to the second, of these accounts; and when that interest is paid, it is credited from the cash book to the second account.

A method for recording such items is described in Section 47. In practice, such entries may be made at the beginning of each month in the following form:

Overdue Mortgage Interest Receivable..............

$245

To Mortgage Interest Receivable.............

$245

For interest falling due in the month of.........., as follows:

Mortgage

82,

Jones,

due

Jan.

$50

"

97,

Smith,

"

"

15.......

75

"

105,

Robinson,

"

"

30.......

120

$245

The account "Mortgage Interest Receivable" is thus composed entirely of credit items, the total amount being carried to Profit and Loss upon the closing of the books (SectionSection212, 213).

As will be seen, this account is an income account showing the total interest of this class earned. It is therefore a matter of importance to see that a proper record is kept of all such interest coming due, and for this purpose a mortgage interest register similar to Form 39 (Section47) is provided. In this record each mortgage should be entered as it is received and the interest be entered in the proper columns to indicate the months in which it falls due. On the first of each month, the record is examined to see that the last mortgages received are entered; the items appearing to accrue during the ensuing month are checked to prove their correctness, and to determine whether or not all payments of, or reductions in, principal have been allowed when calculating the interest due. The column is then added, and the total forms the basis of the journal entry shown above.

The Overdue Mortgage Interest Receivable account contains debit entries corresponding to the above-mentioned credits, and credit entries showing all interest actually paid, the balance being the interest accrued but unpaid, which appears in the balance sheet as an asset. However, it is held by some accountants, that wherever a balance sheet and a profit and loss statement are made up, all interest accrued should be computed and placed on the books.