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Calculate Accrued Interest

What is accrued interest?

This is Interest earned but not received (realized). Interest will usually accrue between last interest payment and the next. The borrower of a loan pays its principal plus the interest earned up to the last installment.

Accrued interest is normally calculated at the end of the month but you may decide to calculate it as often as you want. The only limitation is that you should not calculate it for dates before the last calculation for instance if the last interest calculation date was "30 January 2020", you can only calculate accrued interest after this date. And if you decide to do it at a certain frequency it is better that you stick to it.The principal idea behind this module is that it calculates the accrued interest, checks the balance of the affected accounts, and then updates the accounts to match the calculated interest.

Note:

1. Each time LPF calculates accrued interest, the new amount is booked to the General Ledger thereby replacing the old.

2. For loans on declining balance, interest increases daily. Normally, accrued interest is calculated and booked to the GL at the end of the month. However since penalties do not increase daily, it is recommended that accrued penalties be booked at the date of calculation.

3. Loan Performer works on cash basis meaning that only interest on loans actually received is booked to the general ledger and not Interest that is due or in arrears. However, some organizations don’t agree and would like to show in their financial statements the loan interest that should have been earned but not yet received. With the Accrued Interest menu option, you can update your accounts with interest due and not received.

How to calculate Accrued Interest

To calculate accrued interest you go to Accounts/Calculate Accrued interest and the following screen appears:

• Reporting date: Enter the date of calculation of accrued interest preferably the end of month e.g. "21/11/2019".
• Accrued interest on time deposits only: Select this option to calculate accrued interest on time deposits only. The different time deposit products appear so that you can specify the particular products on which you want to calculate accrued interest. You may also activate the check box "All products" to select all.

Note:

1. Loan Performer allows you to calculate accrued interest just to see the amounts receivable or payable without booking them to the General Ledger. In this case, do not print the report otherwise these figures will be booked to the General Ledger.

2. To select several products, press "Shift" and click on the particular products on which you want to calculate accrued interest.

• Accrued interest on savings only: Select this option to calculate accrued interest on savings. The different savings products appear so that you can specify the particular products on which you want to calculate accrued interest. You may also activate the check box "All products" to select all.

• Accrued interest on loans only: Select this option to calculate accrued interest on loans. The different loan products appear so that you can specify the particular products on which you want to calculate accrued interest. You may also activate the check box "All products" to select all. And when this option is selected the menu item "Exclude loans in arrears of more than" also shows up. This will allow you to exclude loans beyond a certain number of days when accruing penalties on loans

• Recalculate interest for loans on declining balance: For loans on declining balance with interest calculation in days, accrued interest is recalculated at the repayment date in order to determine the actual amount to pay that day.

Note:

If it is a loan on declining balance with interest calculation in days, LPF always recalculates accrued interest at the repayment date. If it is not in days or if it is a flat rate loan, the accrual listens to the setting "Recalculate accrued interest for flat rate loans" at System/Configuration/Accounting/Account settings".



For flat rate loans, the accrued interest or interest in arrears is calculated upto the last installment before the calculation date whereas for loans on declining balance, accrued interest is recalculated upto the payment date. To recalculate interest, go to the menu Loans/Recalculate Interest.

• Accrued penalties on loans: Select this option to calculate accrued interest on penalties on loans. The different loan products appear so that you can specify the particular products on which you want to calculate accrued interest. You may also activate the check box "All products" to select all.
• Accrued commissions on loans: Select this option to calculate accrued commissions on loans. The different loan products appear so that you can specify the particular products on which you want to calculate accrued commissions. You may also activate the check box "All products" to select all.
• Accrued charges on loans: Select this option to calculate accrued charges on loans . The different loan products appear so that you can specify the particular products on which you want to calculate loan charges. You may also activate the check box "All products" to select all.
• Exclude loans in arrears for more than...days: In this field, enter the number of days in arrears in order to exclude those loans whose recovery chances are low in the calculation of accrued interest e.g. "180". This option appears when you activate the check box "Accrued interest on loans only".

• Update the loan ledger card with accrued interest for loans on declining balance: When this option is checked, LPF not only books the accrued interest to the General Ledger but will also add another installment of accrued interest to the client's loan ledger card. This is normally at the end of the month. This enables LPF user to show the client his/her loan ledger card reflecting the up-to-date interest amount to pay at the repayment date especially for loans with interest calculation in days.

• Include prepaid loans: When this option is ticked, prepaid loans that normally don't show up, will also appear with days and the interest in arrears indicated in negatives covering the period of the prepaid interest from the date of prepayment upto current or reporting date.

• Accrued Interest after maturity date for loans on declining balance: This option will accrue interest on loans from the date of maturity to the date of computation or reporting.

Click on the close button to exit.

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