How is the balance for period 1 calculated in cell F20?

The balance for period 1 in cell F20 is calculated as the difference between the previous balance and the principal amount. This represents how the loan balance decreases with each payment made. When a borrower makes a payment, that payment typically consists of two components: interest and principal. The principal amount is the part of the payment that reduces the balance of the loan.

By subtracting the principal from the previous balance, you determine the new balance after accounting for the reduction due to the principal repayment. This calculation is essential for tracking the loan balance over time, as it provides an accurate reflection of how much is owed after each period.

In essence, focusing on the principal amount and understanding its impact on the loan balance is crucial in managing and analyzing loans effectively, making this method of calculation appropriate and relevant.