Processing Principal Payment

7.12.2 Processing Principal Payment

When the principal payment exceeds the principal amount to be provided, the excess amount is moved from the Reserve GL or the Contra GL, and booked into the Income GL.

If the following is true:

Principal Amount Paid> (Outstanding Principal – Reserve Amount – Contra Amount);

The following are the accounting entries:

Table 7-11 Accounting entries

Dr/Cr	Accounting Entires	Description
Dr	Reserve Amount	Write Back from Reserve
Cr	Income	Write Back from Reserve
Dr	Contra Account	Write Back from Contra
Cr	Income	Write Back from Contra

The system considers the Reserve GL first and then the Contra GL when moving funds to the Income GL.

The following example illustrates the same:

Outstanding Principal – USD 100
Reserve Amount – USD 20
Contra Amount – USD 45

Case 1

Principal Amount Paid – USD 30

Hence, Principal Amount < (Outstanding Principal – Reserve Amount – Contra Amount)

The accounting entries are as follows:

Table 7-12 Accounting Entries

Dr/Cr	Accounting Entires	Currency
Dr	Customer	USD 30
Cr	Asset	USD 30

Case 2

Principal Amount Paid – USD 40

Hence, Principal Amount > (Outstanding Principal – Reserve Amount – Contra Amount)

The accounting entries are as follows:

Table 7-13 Accounting Entries

Dr/Cr	Accounting Entires	Currency
Dr	Customer	USD 40
Cr	Asset	USD 40
Dr	Reserve	USD 5
Cr	Income	USD 5

Case 3

Principal Amount Paid – USD 70

Hence, Principal Amount > (Outstanding Principal – Reserve Amount – Contra Amount)

The accounting entries are as follows:

Table 7-14 Accounting Entries

Dr/Cr	Accounting Entires	Currency
Dr	Customer	USD 70
Cr	Asset	USD 70
Dr	Reserve	USD 20
Cr	Income	USD 20
Dr	Contra	USD 15
Cr	Income	USD 15

As the example illustrates, the excess amount is first written back from the Reserve GL, and then the Contra GL if necessary.

Parent topic: Processing a Loan Payment when Contra Accounting is Applicable