Borrowings

Borrowings

1. Borrowings module purpose

Borrowings (also known as Funding Loans) module allows loans to be tracked on a General Ledger level, make repayments to funders (most often banks) and forecast interest future expenses.

2. Creating a new Loan

You can create a new Loan by typing Loan List in search window. Click action New and Loan card pops up. Here you need to input data to define the Loan. See the Figure 1 New Loan Card for reference.

Figure 1 New Loan Card

No. is a unique internal Loan identifier. We recommend inputting self-describing code for better user experience in GL area later on.
Type can have two options: Fixed and Floating. Currently only the Fixed type of Loans is supported in the system.
Status is a non-editable field and can have the following values: New, Confirmed, Re-Opened, Closed. Status New is assigned automatically when a new Loan record is inserted. By clicking action Confirm in the ribbon you can change Status into Confirmed. If you need to modify existing Confirmed Loan and click action ReOpen in the ribbon the Status is changed into Re-Opened. The action Close in the ribbon changes Loan Status into Closed.
Description contains Loan description name. It comes very often from a bank (borrower).
The field Date value system assigns automatically when you create a new Loan but you can change it manually as well. It indicates the date of the Loan agreement.
Input Amount, which is the Loan value.
Select Currency Code if your Loan is in foreign currency.
Starting Date system assigns automatically but you can override the date suggested. It indicates the start of repayment schedule.
Term used to define Loan term. Usually it is 12, 24, 36 months term. You can define you own terms if required also.
Frequency value system uses for repayment schedule creation. Normally it is one month but any other is possible to select also.
Number Of Payment Periods system calculates using fields’ Term and Frequency data.
Instalments Due At. The value affects instalment interest calculation. Refer to Excel PMT function for more detailed reference.
Annuity/Linear field’s value also used for instalment schedule calculation. Most often you will select Annuity.
Balloon % and Balloon Amount allows to define the last repayment. Please note it works differently depending on field’s Instalments Due At value.
Ending Date is automatically calculated date and depends on a Starting Date value.
Fixed Interest % stores interest rate. If you need to include variable interest rate component (BOR for example) click Assist Edit button in the field Interest.
Field Recalculate indicates whether repayment schedule needs recalculation to take latest data adjustments. You will not be able to confirm the Loan if the field’s value is TRUE. Hit action Recalculate installments to set field’s value to FALSE.

Select borrower in the field Creditor No. If the borrower does not exist, create it as a new Contact first.
In the field Loan Acc. No. you have to select record from Vendors table which corresponds to a new Loan. This approach will allow loan balance tracking, post repayments for loan principal part and interest. We recommend assigning Loan’s Description value to field Name in the new Vendor record. Field Application Method value is recommended to select Apply to Oldest. In addition, we suggest dedicating account payable GL account for the Loans only and creating a new Vendor Posting Group, which is selected then for all loan accounts (vendors). Refer to Figure 2 Loan Account and Vendor Posting Group for details.

Figure 2 Loan Account and Vendor Posting Group

When you are done with data input click an action Recalculate installments in the ribbon and system will calculate repayment schedule for you (see the Figure 3 Loan for details).

Figure 3 Loan repayment schedule

It is possible to adjust fields Principal Amount and Interest Amount values manually. In this way, you can align installment schedule within the system with the installment schedule provided to you by borrower. When you finished reviewing and adjusting installment schedule, click action Confirm to validate the Loan.

3. Loan’s postings

You have the Loan confirmed (see Figure 4 Confirmed Loan) and next step is to bring this Loan into the GL.

Figure 4 Confirmed Loan

Open general journal and prepare a new journal line. Make sure the field Loan No. is populated and field’s Loan Installment Part value is Principal before posting the journal line. Field’s Loan No. value is populated automatically when you choose Vendor, which represents the Loan. Field Loan Line No. value must stay 0 and the amount must have negative sign (Leasing company received funds from a bank). We recommend setting field Document Type with blank value as well. See Figure 5 Loan posting for reference. Click Post (Actions → Functions → Post) action to post a journal.

Figure 5 Loan posting

Note that balance on the loan card are also updated automatically after posting is finished.

Figure 6 Loan after posting

Next you need to post repayments using general journal. Repayments postings contain two parts: Principal part and Interest part.
Open general journal and prepare Principal part repayment posting. You have to set field’s Loan Installment Part value to Principal. The Amount has positive sign and Document Type value is Payment. Select Loan Line No. value from the list also. Refer to Figure 7 Loan principal part repayment posting for details.

Figure 7 Loan principal part repayment posting

Note how this posting affects Loan balance after posting is finished.

Figure 8 Loan after principal repayment posting

Now open general journal and prepare Interest part repayment posting. This is a bit more complicated because you have to post Interest accrual before or together with Interest part payment. You have to set field’s Loan Installment Part value to Interest for both interest accrual and repayment. For interest accrual make sure that Document Type is blank, the Amount is negative and fields’ Loan No., Loan Line No. values are selected. You must select interest expenses account in the field Bal. Account No. as well. We recommend creating dedicated GL account to track loan interest expenses on a GL level. Refer to Figure 9 Loan interest accrual and repayment posting for details.
Interest repayment journal line is very similar to principal part repayment except different Loan Installment Part value used for Interest repayment. Refer to Figure 9 Loan interest accrual and repayment posting for details.

Figure 9 Loan interest accrual and repayment posting

Filter journal for Interest accrual journal line and post it using action Post in the ribbon. Interest accrual posting will update repayment schedule Posted flag automatically on the related Loan Schedule Line and will update the Loan balances.

Figure 10 Loan after interest accrual posting

Next post Interest repayment journal line and review Loan balances again.

Figure 11 Loan after interest repayment posting

Open Loan account Vendor Ledger Entries and review all postings completed.