Cash Basis Accounting

In order to run the ledger by Cash Basis when using Actuarial Accounting on Rule of 78 loans, you will need to make the following modifications to the default setup:

  1. Make sure that the Loan Group Setup has the following place-holders all set to NONE: Accrued Deferred Interest1, Deferred Interest Income1, and Interest Income1. Each of these place-holders will be hit with a general ledger entry during the nightly accrual process, and you do not want your nightly accruals to go to the GL when you are doing cash basis accounting.
  2. Set up custom GL place-holders for CB Deferred Interest and CB Interest Income, and map these in the Loan Group to the GL accounts where you will hold the unpaid deferred income and the interest income accounts respectively.
  3. Modify transaction code 110 so that it credits the CB Deferred Interest (instead of Accrued Deferred Interest1).
  4. Modify all Interest Payment Transaction Codes (202, 206, 210, and 222) so that they credit the Loan Asset1 (instead of the Accrued Interest1).
  5. Modify transaction code 214 so that it debits CB Deferred Interest and credits CB Interest Income.

When you add the loan, the full amount of the principal and the expected interest will debit the loan asset. The principal will credit cash, and the amount of the expected interest will credit the Cash Basis Deferred Interest.

During the nightly accrual process, no General Ledger entries associated with interest accruals will reach any GL accounts.

When an interest payment is made, the amount of the interest payment will credit the loan asset (debit is to cash). An additional transaction will automatically be generated for the actuarial amount of the interest paid (trans code 214). This actuarial amount will debit the Cash Basis Deferred Interest and credit the Cash Basis Interest Income.