Overview
Mambu supports the two main accounting methodologies - Cash and Accruals based accounting- which you can choose based on your internal operations.
The difference between both is the moment when income or expenses are recognized on the General Ledger.
While cash accounting recognizes incomes or expenses only when a payment is made or received, accruals recognizes those at the moment they accrue for the organization, regardless if a cash transaction occurs or not.
You can select the methodology for each of your products independently.
Cash
Example: On May 1, 2010, Company A borrowed $100,000 from our MFI and pays 12% interest at the end of June:
[Journal entry on May 1, 2010]
Debit | Credit | |
Loan Portfolio | 100,000 | |
Cash | 100,000 |
Debit | Credit | |
Cash | 102,000 | |
Loan Portfolio | 100,000 | |
Interest from Loan Portfolio | 2,000 |
Accruals
Under the accrual accounting, incomes and expenses are recognized when they are accrued, not when the money is actually exchanged.
Income is then recognized when both the following conditions are met:
- Income is earned.
- Income is realized or realizable.
Income is earned when products are delivered or services are provided.
Example: On May 1, 2010, Company A borrowed $100,000 from our MFI and promised to pay 12% interest at the end of June:
[Journal entry on May 1, 2010]
Debit | Credit | |
Loan Portfolio | 100,000 | |
Cash | 100,000 |
[Interest posted to account on May 31, 2010]
Debit | Credit | |
Interest Receivable | 1,000 | |
Interest Income | 1,000 |
[Interest posted to account on June 30, 2010]
Debit | Credit | |
Interest Receivable | 1,000 | |
Interest Income | 1,000 |
[Payment received on June 30, 2010]
Debit | Credit | |
Cash | 102,000 | |
Loan Portfolio | 100,000 | |
Interest Receivable | 2,000 |
[Sources: http://accountinginfo.com/study/accrual-101.htm, http://en.wikipedia.org/wiki/Comparison_of_cash_and_accrual_methods_of_accounting]
Interest Accrual in Accounting
For Accruals methodology you can choose between Daily and Monthly Interest accrual methods.
The total accrued interest will be booked on the last day of every month for Monthly accrual, and for Daily accrual they will be posted daily at 23:59:59, the time of the organisation.
At the end of the following month, the previous monthly journal entries will be reversed and the new ones with the current interest accrued will be logged.
Method Transition
If the method is changed on an active product, for example mid-month the method is changed from Monthly to Daily, the journal entries will be reversed, to be in accordance with the newly selected method. The same applies when transitioning from Daily to Monthly, on the next End of Day Process execution, the daily journal entries will be reversed, adding instead monthly entries at the end of the month.