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Loan GL accounts settings part 1

This window allows the user to define GL accounts for your loan transactions for each product.

The automatic bookings, such as loan transactions, will be activated after entering the starting date for the financial year at System/Configuration/Accounting. Once activated it cannot be de-activated anymore.

How you define different General Ledger accounts

To define and assign different General Ledger accounts go to System/Configuration/Loan Product Settings/GL Accounts 1-2 Settings and the following screen appears:

• Loan Product: From the drop down select the product whose General Ledger accounts you want to configure e.g "Business loan". The loan products should have been previously entered in the menu System/Configuration/Products.
• Principal outstanding account: Select the GL account for the principal outstanding e.g "124010". This account will track and reflect the value of the balance of principal outstanding.
• Provision for bad debts accounts: Select the GL account for provision for loan loss e.g "223010". A loan loss provision is an expense set aside as an allowance for bad loans as a result of customer defaults. Also know as a "valuation allowance" or "valuation reserve". Loan loss provision is calculated under the menu Accounting/Calculate Provisions.
• Provision costs for bad debts account: Select the GL for Bad debts expenses e.g "520040". Bad debts expenses is now the actual loss that a company incurs when the customer / borrower fails to pay the amount owed and leads to a write-off under the menu Loans/Write off Loans. In other words, bad debts expense is related to a company's current asset accounts receivable.
• Interest received on loans accounts: Select the GL account for Interest received on loans e.g "420040". Loan payment usually consists of payment of both Loan (Capital/Principle) and interest which is the cost of borrowing.
• Loan written off account: Select the GL account for the loans that have been written off e.g. "124110".
• Accrued interests due accounts: Select the GL account for Accrued interest due e.g "430040". Accrued interest due is the amount of loan interest that has been earned but not yet collected or paid by the borrower. The accrued interest will be reported by the borrower as both an expense on its income statement, and a current liability on its balance sheet. In LPF accrued interest is calculated under the menu Accounting/Calculate Accrued interest.
• Accrued interests received accounts: Select the GL account for accrued interests earned e.g."430040".
• Loan refinance account:Select the GL account for loan refinance fees e.g. "420100". Loan refinance is done under menu Loans/ Refinance.
• Accrued penalties due account: Select the GL account for Accrued penalties e.g."125030". These are penalties charged on loans that should have already been paid but have not yet been paid.
• Accrued penalties earned account: Select the GL account for penalties due and earned e.g."125040". These are penalties on loans that were accrued and were later paid.
• Accrued commissions due accounts: Select the GL account for accrued commissions due e.g "125050". Accrued commissions due is the amount of loan commissions fees that has been earned but not yet collected or paid by the borrower.
• Accrued commissions earned accounts: Select the GL account for accrued commission earned e.g."125060".
• Recovery of bad debts accounts: Select the GL for posting of recoveries from the bad debt / loans e.g."420090".
• Stationery account: Select the appropriate GL for stationery e.g "440070".

Note that the stationery fees will be booked on this GL account specified above. It is similar to the GL account down that you will have to define if you choose to specify that stationery fees are to be paid at loan disbursement by activating the corresponding option under the menu System/Configuration/Loan Product Settings/Fees. And that case, it is not necessary to define the above GL.

• Cheques account: Select the suspense account that will be used to handle loan transactions by cheques e.g "127030"
• Over payment account: Select the GL account that takes care off payments over and above (Excess) the amounts paid.e.g "260000" these can be over payment of a loan.
• Cheque charges account: Select the GL account for cheque charges related to loan transactions e.g."127030".
• Loan Commission account: Select the GL account for loan commission paid with each repayment e.g "420010".The commission amount will be specified when entering a loan application under menu Loans/Loan Application/Loan Entry Part 1.

• Note:
  
  1. The GL account specified above is useful if you prefer your clients to pay loan commission gradually with each installment. Loan Performer gives the user the choice of levying loan commission either at application or disbursement, in this case define the corresponding GL accounts down on this same screen. Note that there could be organizations that charge loan commission in all the three different cases.
  
  2. Note that importation of Loan commission is only possible when it is made compulsory under System/Configuration/Loan Product Settings/Fees. Other wise the importation feature will not appear under the menu Loans/Loan Importations. Other fees can also be made compulsory before application, before approval, before disbursement and at disbursement.

• Penalty accounts loans: Select the GL for loan penalties e.g "440110"
• Currency differences account: Select the GL for currency differences for loans bound to a foreign currency e.g "dollar".

For instance, if the exchange rate of the dollar to the shilling at disbursement of the loan is 1:1000, and at repayment it is 1:2000, a loan repayment of sh. 1050 will be: Rate at repayment / Rate at Disbursement * Repayment amount i.e. 2000 / 1000 * 1050 = 2100. The currency difference shall then be posted on the GL defined here. Linking a loan to a foreign currency is done at loan application under the menu Loans/Loan Application/Loan Entry Part 1.

Fees during application: These are fees levied at loan application.

Note:

1. In the Loan Performer menu "System/Configuration/Loan Product Settings/Fees", you can define the amount and when the loan fees should be levied. This can be at loan application, before approval, after approval or at loan disbursement. You may also tick the corresponding check boxes to make payment of these fees compulsory.

2. When you decide to levy the loan fees before application by specifying the amounts under the menu "System/Configuration/Loan Product Settings/Fees", an additional feature "Loan fees before application"appears in the loans module, otherwise it won't be displayed on the Loan Performer interface.

3. When you decide to levy the loan fees after application by specifying the amounts under the menu "System/Configuration/Loan Product Settings/Fees", an additional feature "Loan fees before approval"appears in the loans module, otherwise it won't be displayed on the Loan Performer interface.

4. When you decide to levy the loan fees before disbursement by specifying the amounts under the menu "System/Configuration/Loan Product Settings/Fees", an additional feature "Loan fees after approval "appears in the loans module, otherwise it won't be displayed on the Loan Performer interface.

5. When you decide to levy the loan fees during disbursement by specifying the amounts under the menu "System/Configuration/Loan Product Settings/Fees", the disbursement screen will appear with the amount specified above, otherwise it won't be displayed on the Loan Performer interface.

• Stationery: Select a GL account for Stationery that is paid at loan application e.g."440071".

• Commission: Select a GL account for commission paid at loan application e.g "420012".
• Development fees: Select a GL account for development fees that are to be paid at loan application e.g "221020".
• Refinancing fees: Select the GL account for loan refinance fees to be paid at application e.g. "420100". Loan refinance is done under menu Loans/ Refinance.

Fees during disbursement: These are fees that will be levied at loan disbursement under the menu Loans/Disbursement.

Note:

1. In the Loan Performer menu "System/Configuration/Loan Product Settings/Fees", you can define the amount and when the loan fees should be levied. This can be at loan application, before approval, after approval or at loan disbursement. You may also tick the corresponding check boxes to make payment of these fees compulsory.

2. In this case you should have selected the option "Fees at disbursement" and specified the required fees amounts.

• Stationery: Select a GL account for stationery fees paid at loan disbursement e.g "440072".

• Commission: Select a GL account for commission paid at loan disbursement e.g "420011".
• Mark up: Select the GL account for the mark up e.g "126010". This is the account where the excess amount will be booked when you disburse a loan to a supplier who supplied the goods for which the applicant applied for the loan.

Note:

1. The mark up is the difference between the loan amount applied for by the client and the amount paid to the supplier. The loan amount disbursed must be greater than the supplier's invoice amount.

2. The loan is disbursed against the supplier's invoice entered under the menu Accounting/Purchases and Sales/Invoices Received. In this case you have to tick the option "Disbursement to supplier" under the menu Loans/Disbursement, it is basically the concept of Disbursement in kind in Loan Performer.

3. The concept of mark up is favorable to Micro Finance Institutions practicing Islamic banking. In this case, MFIs do not charge interest on loans given to clients. Instead, they prefer to disburse the money directly to the supplier of the goods for which the client took the loan. The loan amount disbursed must be greater than the supplier's invoice amount so that the excess amount is booked on the GL account defined above as mark up. This is basically revenue to the institution for the services rendered to the client. However, the client will have to pay back the full loan amount and not only the amount disbursed to the supplier. It is basically the concept of Disbursement in kind in Loan Performer.

4. You will be able to see the mark up amount received on each loan disbursed to a supplier by consulting the report on disbursements under the menu Loans/Portfolio Reports/Disbursement Report.

• Development fees: Select a GL account for development fees that are to be paid at loan disbursement e.g "420120".
• Processing fees: Select here the GL account for loan processing fees to be paid at loan disbursement e.g "420100".

Click on the Save command button to save the settings and on the Close command button to quit.

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