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?
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)
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