Summary

This document expands upon Introduction to Accounting in Finflux and describes the default accounting associated with Non Performing Assets when accrual accounting is associated with them

Scenario

A loan with the following repayment schedule is considered for all examples covered in this document.

This loan shall move into NPA status as on the 1st of February if no payments are made for the amount due on the 15th of Jan

Due Date	Interest due	Fee due	Penalty fee	Interest accrued	Fee accrued	Penalty accrued	Comments
15th Jan	100	10
15th Feb	100	10	5
15 March	100	10	5

Chart of Account Snippet

GL Category	GL Account Name	Comments
Asset	Fund Source	A Cash or Bank account from which the loan are disbursed and to which repayments are made
	Interest Receivable	Receivable tracking accrued Interest
	Fee receivable	Receivable tracking accrued fees
	Penalty receivable	Receivable tracking accrued penalties
Income	Income from Interest
	Income from Fees
	Income from Penalties
Liability	Liability due to Non Receipt of Interest from loans in NPA	A "suspense" account tracking Interest income from loans that are marked as NPA
	Liability due to Non Receipt of Fees from loans in NPA	A "suspense" account tracking fee income from loans that are marked as NPA
	Liability due to Non Receipt of Penalties from loans in NPA	A "suspense" account tracking penalty income from loans that are marked as NPA
Expense	Loan Write-off Expense	Tracks all principal, interest, fee and penalty write-offs linked to a loan

New Loan Events

Three new loan events are applicable for loans in NPA status. They are

Accruals in suspense : This event runs immediately after any accruals linked to NPA assets. Additionally, this event also runs every time a loan moves into NPA status and marks any existing accruals linked to this loan which have not yet been realized as in-suspense.
This event corresponds to balances of accruals in income accounts being moved to "suspense" accounts.
Recovery of accruals in suspense : This event occurs whenever a payment results in a realization of any accrued portions for loans marked as NPA. This event can also occur when a loan moves out of NPA state (in case an Organization allows loans to move out of NPA state before all dues have been cleared).
This event corresponds to balances of accruals in "suspense" accounts being moved to income accounts.
Write-off of accruals in suspense : Associated with the write-off of Interest , fee and penalty portions of a loan in NPA status.
This event results in reversals of any balances in "suspense" income accounts.

Accounting Activity

This section describes the various accounting events linked to the sample loan over accruals, repayments and write-offs made on or after the 15th of January

Accruals on the 15th of January

As per the loan schedule, the following amounts are accrued as on the 15th of January.

Due Date	Interest due	Fee due	Penalty fee	Interest accrued	Fee accrued	Penalty accrued	Comments
15th Jan	100	10		100	10

The accounting events linked to these accruals are as follows

Event	GL Account	Debit	Credit
Interest Accrual	Interest Receivable	100
Interest Accrual	Income from Interest		100
Fee Accrual	Fee receivable	10
Fee Accrual	Income from Fees		10

Month-end Accruals on the 31st of January

As per the loan schedule, the following amounts are accrued as on the 31st of January.

Due Date

Interest due

Fee due

Penalty fee

Interest accrued

Fee accrued

Penalty accrued

Comments

15th Feb

100

10

5

50

5

2

Note that only a portion of the interest , fees and penalties due on the 15th of Feb are accrued as on the 31st of Jan

The accounting events linked to these accruals are as follows

Event	GL Account	Debit	Credit
Interest Accrual	Interest Receivable	50
Interest Accrual	Income from Interest		50
Fee Accrual	Fee receivable	5
Fee Accrual	Income from Fees		5
Penalty Accrual	Penalty receivable	2
Penalty Accrual	Income from Penalties		2

NPA movement on the 1st of February

As per the loan schedule, following a non-payment, this loan shall move into NPA status on the 1st of February.

When this loan has moved into arrears status, the breakup of amounts accrued and not yet paid are as follows

Due Date

Interest due

Fee due

Penalty fee

Interest accrued

Fee accrued

Penalty accrued

Comments

15th Jan

100

10

100

10

15th Feb

100

10

5

50

5

2

Regular accruals till 31-jan following which the

loan is tagged as a NPA on the 1st of Feb

When the loan moves into NPA, all of the amounts where were accrued but not paid would be moved into suspense accounts. The accounting entries related to the same are as follows

Event	GL Account	Debit	Credit
Interest Accruals in Suspense	Liability due to Non Receipt of Interest from loans in NPA		150
Interest Accruals in Suspense	Income from Interest	150
Fee Accruals in Suspense	Liability due to Non Receipt of Fees from loans in NPA		15
Fee Accruals in Suspense	Income from Fees	15
Penalty Accruals in Suspense	Liability due to Non Receipt of Penalties from loans in NPA		2
Penalty Accruals in Suspense	Income from Penalties	2

Accruals on the 15th of February

As per the loan schedule, accruals for this NPA loan as on the 15th of February are as follows

Due Date	Interest due	Fee due	Penalty fee	Interest accrued	Fee accrued	Penalty accrued	Comments
15th Feb	100	10	5	50	5	3	Note that only the differential accrual after the loan has moved into NPA status is shown. The accrual is from the 1st to the 15th of February

Note that since this loan is in a NPA status, any accruals on this loan are are marked as in-suspense. The net accounting entries related to the same are as follows

Event	GL Account	Debit	Credit
Interest Accrual	Interest Receivable	50
Interest Accrual	Income from Interest		50
Interest Accruals in Suspense	Liability due to Non Receipt of Interest from loans in NPA		50
Interest Accruals in Suspense	Income from Interest	50
Fee Accrual	Fee receivable	5
Fee Accrual	Income from Fees		5
Fee Accruals in Suspense	Liability due to Non Receipt of Fees from loans in NPA		5
Fee Accruals in Suspense	Income from Fees	5
Penalty Accrual	Penalty receivable	3
Penalty Accrual	Income from Penalty		3
Penalty Accruals in Suspense	Liability due to Non Receipt of Penalties from loans in NPA	3
Penalty Accruals in Suspense	Income from Penalties		3

Month-end Accruals on the 28th of February

Month end accruals would ignore any loans which are categorized as Non Performing assets

Accruals on the 15th of March

As per the loan schedule, accruals for this NPA loan as on the 15th of March are as follows

Due Date	Interest due	Fee due	Penalty fee	Interest accrued	Fee accrued	Penalty accrued	Comments
15th Feb	100	10	5	100	10	5

Note that since this loan is in a NPA status, any accruals on this loan are immediately marked as in-suspense. The net accounting entries related to the same are as follows

Event	GL Account	Debit	Credit
Interest Accrual	Interest Receivable	100
Interest Accrual	Income from Interest		100
Interest Accruals in Suspense	Liability due to Non Receipt of Interest from loans in NPA		100
Interest Accruals in Suspense	Income from Interest	100
Fee Accrual	Fee receivable	10
Fee Accrual	Income from Fees		10
Fee Accruals in Suspense	Liability due to Non Receipt of Fees from loans in NPA		10
Fee Accruals in Suspense	Income from Fees	10
Penalty Accrual	Penalty receivable	5
Penalty Accrual	Income from Penalty		5
Penalty Accruals in Suspense	Liability due to Non Receipt of Penalties from loans in NPA	5
Penalty Accruals in Suspense	Income from Penalties		5

Payment on the 16th of March

As on the 16th of March. The total accruals made on this NPA loan as per the schedule is as follows.

Due Date	Interest due	Fee due	Penalty fee	Interest accrued	Fee accrued	Penalty accrued	Comments
15th Jan	100	10		100	10
15th Feb	100	10	5	100	10	5
15 March	100	10	5	100	10	5

If a payment is made for the entire accrued amounts, that is for a total of 340, the accounting entries generated would be as follows

Event	GL Account	Debit	Credit
Payment of Interest, Fees and Penalties	Fund Source	340
	Interest Receivable		300
	Fee receivable		30
	Penalty receivable		10
Recovery of Interest Accruals in suspense	Liability due to Non Receipt of Interest from loans in NPA	300
Recovery of Interest Accruals in suspense	Income from Interest		300
Recovery of Fee Accruals in suspense	Liability due to Non Receipt of Fees from loans in NPA	30
Recovery of Fee Accruals in suspense	Income from Fees		30
Recovery of Penalty Accruals in suspense	Liability due to Non Receipt of Penalties from loans in NPA	10
Recovery of Penalty Accruals in suspense	Income from Penalties		10

Alternate scenario : Write-off on the 16th of March

As on the 16th of March. The total accruals made on this NPA loan as per the schedule is as follows.

Due Date	Interest due	Fee due	Penalty fee	Interest accrued	Fee accrued	Penalty accrued	Comments
15th Jan	100	10		100	10
15th Feb	100	10	5	100	10	5
15 March	100	10	5	100	10	5

If a write-off is made for the entire accrued amounts on the NPA loan, that is for a total of 340, the accounting entries generated would reverse any balances in suspense accounts

Event	GL Account	Debit	Credit
Write-off of Interest, Fees and Penalties	Liability due to Non Receipt of Interest from loans in NPA	300
	Liability due to Non Receipt of Fees from loans in NPA	30
	Liability due to Non Receipt of Penalties from loans in NPA	10
	Interest Receivable		300
	Fee receivable		30
	Penalty receivable		10

Note that if this loan was not in an NPA status, the accounting entries would have debited an expense account instead instead of reversing "Suspense" income accounts, i.e

Event	GL Account	Debit	Credit
Write-off of Interest, Fees and Penalties	Loan Write-off Expense	340
	Interest Receivable		300
	Fee receivable		30
	Penalty receivable		10

Open Questions

Question

Resolution

How are Tax portions handled in write-offs and accruals ? If we have a liability associated with taxes linked to a charge, is the same recognized during accruals or during payment ?

For example, if I have a GST of Rs 10 linked to a processing charge of Rs 200. Which set of accounting entries are more appropriate ?

Option a)

Event	Account	Debit	Credit
Processing fee + GST accrued	Income from Fees		200
	GST Liability		10
	Fee receivable	210
Processing fee + GST payment	Fund source	210
Processing fee + GST payment	Fee receivable		210

Option b)

Event	Account	Debit	Credit
Processing fee accrued	Income from Fees		200
Processing fee accrued	Fee receivable	200
Processing fee + GST payment	Fund source	210
	Fee receivable		200
	GST Liability		10

Finflux User Manual

Accounting for NPA