Cash Basis Accounting
In Cash Basis Accounting, revenue for interest is not realized until the point of interest payment. The Nortridge Loan System is configured, by default for Accrual basis accounting. In order to run your interest via cash basis, it is necessary to make the following modifications to the setup:
- Make sure that the place-holders Accrued Interest1 and Interest Income1 are mapped to NONE. These place-holders will automatically receive a debit and credit (respectively) of the amount of the daily accrual, and in Cash Basis you do not want a daily posting. Therefore, your actual interest revenue account CANNOT run through the Interest Income1 place-holder.
- Use the “Labels” setup under Loan Setup to set one of the user-defined loan group place-holders for your actual cash-basis interest income. Use a label such as “CB INTEREST INCOME.” It is not necessary to create a place-holder for the receivable asset as there is no interest receivable in cash-basis accounting.
- Map the placeholder you have created (e.g. CB INTEREST INCOME) to your actual interest revenue account in the Loan Group.
- Modify the following interest payment transaction codes (202, 206, 210, and 222) as follows: the credit is set to PHAccrued Interest1; change this credit to the placeholder that you have created for your cash basis interest income (e.g. CB INTEREST INCOME).