Setting Up Transaction Codes

Because Amortized Fees are entirely invisible to the end user, the main purpose of the function is to control the transactions that apply income to the general ledger.

A fee (one that does not need to have its income amortized) would generally have two transaction codes involved, one for the assessment of the fee and one for the payment, and the general ledger setup of that fee would usually look something like this:

Transaction GL Debit Account GL Credit Account
Fee Assessment Accrued Fees (Receivable) Fee Income
Fee Payment Cash Accrued Fees (Receivable)

In the case, where we can not credit the income upon assessing the fee, because that income must be stretched out over the life of the loan, we need to add two additional transaction codes, one to establish the fee amortization, and another to actually amortize it on a daily, weekly, monthly, etc. basis. If we assume that the credit to fee income occurs on the periodic amortization transaction, our (somewhat incomplete) general ledger setup will now look like this:

Transaction GL Debit Account GL Credit Account
Fee Assessment Accrued Fees (Receivable) ?
Fee Payment Cash Accrued Fees (Receivable)
Establish Fee Amortization ? ?
Periodic Amortization of Fee ? Fee Income

In order to begin filling in the blanks, we begin by establishing a general ledger account to represent the asset of fees which have been assessed but not yet amortized. We will name this account: Unamortized Fees. At any time, the balance in this account will represent the remaining amount of fees to be amortized. The addition of this account to the GL setup results in the following configuration:

Transaction GL Debit Account GL Credit Account
Fee Assessment Accrued Fees (Receivable) ?
Fee Payment Cash Accrued Fees (Receivable)
Establish Fee Amortization ? Unamortized Fees
Periodic Amortization of Fee Unamortized Fees Fee Income

This leaves us with just one more GL account needed. An analysis of the transactions indicates that this account represents the amount of any fee (of a type which should be amortized) which has been assessed but for which the fee amortization has not been set up. The balance of this account should always be zero, and any non-zero balance indicates that a fee amortization setup has been neglected. With the knowledge that this account should never hold a balance for longer than the time it takes to set up the fee, we name this account: Amortized Fees Clearing Account. We now have the following configuration:

Transaction GL Debit Account GL Credit Account
Fee Assessment Accrued Fees (Receivable) Amortized Fees Clearing Account
Fee Payment Cash Accrued Fees (Receivable)
Establish Fee Amortization Amortized Fees Clearing Account Unamortized Fees
Periodic Amortization of Fee Unamortized Fees Fee Income

You can now go into Loan Setup: Labels to configure GL place-holders for the Amortized Fees Clearing Account and the Unamortized Fees accounts. Once the GL place-holders have been configured, you should map the actual GL accounts in your Loan Group setup.

You are now ready to set up the two transaction codes. For general information, see: setting up custom transaction codes.

The specifics of these transaction codes are as follows:

The Amortized Fee Establishing Transaction

In order for this transaction code to be used for this purpose, make sure that the Transaction Type is set to Generic, the Transaction Classification is set to Amortized Fee, and the Loan Balance Affected is set to Amortized Fees Total (increase). The general ledger controls should be set up based on the GL configuration in the table above.

The Amortized Fee Periodic Amortization Transaction

In order for this transaction code to be used for this purpose, make sure that the Transaction Type is set to Generic, the Transaction Classification is set to Amortized Fee, and the Loan Balance Affected is set to Amortized Fees Amortization (increase). The general ledger controls should be set up based on the GL configuration in the table above.