Your Ask Joey ™ Answer

Does the principal payment on debt impact the income statement?

No, only the interest portion of a debt payment impacts the income statement. The principal portion of a debt payment only impacts the balance sheet.

The visual below illustrates the journal entry that the company would record for a debt payment. Most of the payment goes to paying principal, which reduces the debt liability on the balance sheet, while the remainder goes to paying the interest. Principal payments only impact the balance sheet, while interest payments impact the income statement (and the balance sheet if interested is accrued for).

Its important to note that debt payments would be included in the financing section of the cash flow statement.


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