How to account for Loan extended in nbfc.
This query is : Resolved
23 September 2010
How to account for Loan extended in nbfc.
Ex: Loan of Rs. 3,00,000/- given for 12 months, EMI - 29246/-
1) Party Account Dr 3,50,952
to Bank 3,00,000
to Unmatured Interest 50,952
When ever EMI received amount will be credited to Party A/c on completion of EMI Party account will be tally.
what ever be the interest accrued will be transferred to Interest received A/c(P&L) on that particular financial year.
(OR)
2) Party Account Dr 3,00,000
to Bank 3,00,000
when ever EMI received amount will be credited to Party account. and on completion of a financial year Interest accrued will be transferred to Interest received account from party account.
if 1st option is correct is it asset value of party is overstated? if 2nd option is correct at any point of time party a/c balance would not be tally with the repayment schedule of loan?
please advice me?
Ex: Loan of Rs. 3,00,000/- given for 12 months, EMI - 29246/-
1) Party Account Dr 3,50,952
to Bank 3,00,000
to Unmatured Interest 50,952
When ever EMI received amount will be credited to Party A/c on completion of EMI Party account will be tally.
what ever be the interest accrued will be transferred to Interest received A/c(P&L) on that particular financial year.
(OR)
2) Party Account Dr 3,00,000
to Bank 3,00,000
when ever EMI received amount will be credited to Party account. and on completion of a financial year Interest accrued will be transferred to Interest received account from party account.
if 1st option is correct is it asset value of party is overstated? if 2nd option is correct at any point of time party a/c balance would not be tally with the repayment schedule of loan?
please advice me?
24 September 2010
You cannot credit interest upon giving loan as the same is not accrued.
So option 2 entry is correct. You should have an EMI schedule which shows the principal and interest included in the payment of 29,246. Interest will be higher in the initial installments and then it will start going down. Every month you will pass entry like this for the interest amount.
Interest Receivable Debit
Interest Income Credit
When party pays you will pass entry:
Bank Debit
Party credit (principal amount)
Interest Receivable credit (interest amount)
Hope it is clear.
So option 2 entry is correct. You should have an EMI schedule which shows the principal and interest included in the payment of 29,246. Interest will be higher in the initial installments and then it will start going down. Every month you will pass entry like this for the interest amount.
Interest Receivable Debit
Interest Income Credit
When party pays you will pass entry:
Bank Debit
Party credit (principal amount)
Interest Receivable credit (interest amount)
Hope it is clear.
Message likes :
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25 September 2010
First thanks for reply,
for follow up of Party we have to follow another set of procedure because balance in party account doesn't tally with the EMI outstanding. correct?
for follow up of Party we have to follow another set of procedure because balance in party account doesn't tally with the EMI outstanding. correct?
27 September 2010
Party account will tally with EMI schedule principial balance.
Let us assume 1 lac is the loan. 10 EMIs of 12,000 each. So total interest is 20,000.
Let us say split of first EMI is Principal 9000 + Interest 3000.
After payment of first instalment, outstanding will be 91,000 in party account as well as EMI schedule.
Pls revert, if you have not understood still.
Let us assume 1 lac is the loan. 10 EMIs of 12,000 each. So total interest is 20,000.
Let us say split of first EMI is Principal 9000 + Interest 3000.
After payment of first instalment, outstanding will be 91,000 in party account as well as EMI schedule.
Pls revert, if you have not understood still.
27 September 2010
i can understand balance in party account will be principal outstanding.
Thank you.
Thank you.
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