1. Bilateral Loans
  2. Automatic Processing
  3. Specifying Branch Parameters
  4. Setting the Accrual Level

10.2.3 Setting the Accrual Level

To recall, at the time of creating a product, you specify,
  • Whether accrual of interest is allowed for the product.
  • The accounting entries that should be passed for the accrual event.
  • The frequency at which the accrual entries should be passed
A loan inherits the accrual frequency defined for the product associated with it.

Since the accounts (the accrual account and the income account) are defined for a product, the accrual entries for all loans involving the product are passed to the same accounts.

These entries can be passed in two ways:
  • An entry for each loan. The same accrual and income account are involved for each entry, with the Reference Number of the loan indicated for each loan.
  • A single consolidated entry for all loans involving a product. Since the same accrual and income account is involved in all accrual entries, a single consolidated entry is passed, with a unique reference number generated for each product.
The idea of generating a single entry for all loans involving a product is to reduce the number of entries and thus, the processing time. The details of entries passed for each loan is available in the Accrual Control Journal, a report that should be generated after the accruals have been made.

Whether interest accrual entries are passed as a single consolidated entry for a product, or as an individual entry for each loan, should be specified for a branch.

Note:

This specification is applicable only for automatic periodic accrual entries. When there is an accrual necessitated by a payment or a change in the terms of a loan, the entries will be for the specific loan affected by the change.

Example

You have created a product for Short Term Loans with Individuals. The product has the following characteristics:
  • Interest application method is bearing and fixed rate.
  • Interest has to be accrued every month.
The accounting entries during interest accrual (defined for the event ACCR) are as follows:
Accounting Role Accounting Head Item Dr/Cr
INTEREST_REC INTLI01 Interest Dr
INTEREST_INC INTINC01 Interest Cr
The interest calculation method is 360/365:
Contract Tenor Interest
Contract 1 3 months USD 300
Contract 2 6 months USD 500
Contract 3 12 months USD 1000
The accounts into which the accrual entries should be passed for each of these contracts are the same, as they are linked to the same product.
Accrual entries level
  • Product

    If you indicate that the automatic interest accrual process should pass accrual entries at the product level, a single accrual entry is passed for all the loans.

  • Contract

    If you indicate that the automatic interest accrual process should pass accrual entries at the contract level, three accounting entries for the loans are passed, for each loan.

Parent topic: Specifying Branch Parameters