What Is Accrued Interest?

In accounting, accrued interest refers to the amount of interest that has been incurred, as of a specific date, on a loan or other financial obligation but has not yet been paid out. Accrued interest can either be in the form of accrued interest revenue, for the lender, or accrued interest expense, for the borrower.

The revenue recognition principle states that revenue should be recognized in the period in which it was earned, rather than when payment is received.

The amount of accrued interest for the party who is receiving payment is a credit to the interest revenue account and a debit to the interest receivable account. The receivable is consequently rolled onto the balance sheet and classified as a short-term asset. The same amount is also classified as revenue on the income statement.

The accrued interest for the party who owes the payment is a credit to the accrued liabilities account and a debit to the interest expense account. The liability is rolled onto the balance sheet as a short-term liability, while the interest expense is presented on the income statement.

What is Amortization ?

Amortization can also refer to the amortization of intangibles. In this case, amortization is the process of spreading the cost or income over the projected life of the transaction. It also measures the consumption of the value of an intangible asset, such as goodwill, a patent, a trademark, or copyright.

When businesses amortize expenses over time, they help tie the cost of using an asset to the revenues that it generates in the same accounting period.

Difference between Accrual and Amortization.

Some users may desire to accrue or amortize large infrequent expenses and incomes over the period of time to which they apply, where an accrual will be used where the expense occurs at the end of the period and an amortization will be used when the expense (such as an Interest paid in advance or paid management fee) is paid at the beginning of the period.

How Accruals Calculated and Settled in DOKA

Transaction COBACR is used for accruing of commissions. 

The accrual here shows the real status of the earned fees and commission at a specific date, independent of the fact, whether the commissions have been earned in advance or if they will be earned in arrears in the future.

For accruals, relevant commissions are booked from the income account to an interim account (accruing account) and from there back again to the income account. Banks, for example, may book amounts from the interim account to the income account on a daily basis. The accruing process can handle either commissions already booked or commissions to be booked, i.e. the accruals can be calculated in advance or in arrears.

Commissions to be settled have to be defined as follows in the fee definition (in transaction Maintaining Fees (DBIFEE)):

Maintaining Relevant Accounts for Accrual

For fees that can also be accrued in arrears, the liability amount has to be entered as relevant amount.
The Banks income accounts to be maintained in the “Account” field and the interim Accrual account to be maintained in the “Accruing Account” field of this fee. In this way, the system has the required information to accrue the relevant commissions correctly.

Foreign Currency Contracts:

Please note, the accruals will happen in the contract's commission currency (which may differ for a foreign currency contract and account setup for the customer). For foreign currency contracts, there are separate fields in Maintaining Fees to define the foreign currency accrual account and income account. Therefore, if the commission currency is a foreign currency, then accrual will also be in that foreign currency.

For Foreign currency contracts, the “Foreign Accruing account” and “Foreign Base account” are to be defined in the “Foreign Base Currency Details” panel. This panel is visible only if the “Income” flag is checked. If Foreign base account field is set, then Foreign Accruing account field becomes mandatory.

However, the accruals and postings for foreign currency contracts will be posted in these accounts only if “Foreign System currency” field is maintained in Maintaining Entity Groups is filled with a foreign currency. Else, accrual postings will continue with the normal accruing and income account from Fee panel.

Run COBACR transaction:

Select it from the menu item[System Administration -> Batch Processing -> Various -> Accrual].

(Users can also directly start this transaction by clicking the  (Launch transaction ) available in the Panel headline without having to select the relevant menu) 

It is possible to run a test accrual by clicking on Test button in which only a log file is generated. You can view the log details by clicking on LOG button,

Actual accrual entries are generated by clicking on Process button in which the bookings are made and the log file is generated after clicking on LOG button

The totals for each income account are booked (separated to amounts earned in advance or earned in arrears amounts) in order not to have a great number of bookings per day.

The accruing is administered in two database tables: “ACR” (Accruing Control Records - one entry per contract + FEE/FEP) and “ACS” (Accruing Sum Records per Account - one entry per account and currency). For commission already calculated, the amount at the due date is calculated. Accruals that are to be settled in arrears are calculated up to the due date according to the conditions.

How to view the Accrued GLE entries and details after running Accrual Transaction(COBACR) 

There are 2 places where we can find those details:

1) Transaction INFACR , After starting the transaction the “Search Panel” is displayed. The refresh icon must be clicked after entering or selecting the fields or combo boxes on top of the panel.

In case the option are left empty, all available accruing are listed in the table below. By highlighting an entry and clicking the icon (or by double clicking an entry), information about each individual entry can be displayed on the “Accruing Details Panel”.

By checking the checkbox “Only accrued”, only records having an accruing amount greater than zero are displayed (in field “Accrued” on panel “Accruing Details Panel”).

2) You can open the Info system for any contract and find the accrual entries in GLE Bookings tab.

Note:

To view the accrual entries in GLE Bookings we have to do a initial setup in General System settings (DBISYS) by enabling the field Activate GLE-Entries for Accruing. (Maintain System Configurations - DBISYS)