It seems if you only include interest expense and do not include the required payment on the principal, the Income Statement would seem misleading.
In: Other
Because assets – liabilities stays the same.
If you have $15k in cash, and you owe $5k on a car that’s worth $8k, your net worth is $15k cash + $8k car – $5k loan = $18k.
If you pay off the loan, you now have $10k in cash, your net worth is still the same: $10k cash + $8k car – $0k loan = $18k.
Basically every asset / liability has a value for accounting purposes, and you don’t have profit / loss converting between your assets / liabilities at that accounting value.
That is, if you got a deal from the lender and spent $4k to settle the loan, you’d need to add a $1k profit to your P/L to make -$4k cash balance with $-5k liabilities. If due to interest you end up paying them $6k to settle a debt that your books showed was $5k, similarly you need to add $-1k loss to make it balance.
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