What: Enable Cash Accounting Methodology for Loan Products with Funding Sources (P2P).
With this methodology, accounting entries to recognise organisation income from interest (commission), fees or penalties would only be booked once a repayment is actually received (i.e. there are no receivable accounts), as opposed to Accrual Accounting Methodology when income is booked as it's earned (on the receivable accounts).
Why: Depending on the P2P organisation model, there might be two different approaches as to when the organisation commission is charged and recognised as income (also from the accounting perspective):
- when the interest is earned with a daily interest accrual (existing model with accrual accounting)
- only in a situation when an actual repayment is made from the borrower to the funder and the interest/ fee/ penalty is repaid (new functionality supported with cash accounting)
In the second scenario, total interest that accrues belongs to the investors (since they are funding the loan amount in 100%), and the organisation charges commission only when actual repayments are made due to the fact that they intermediate between the borrowers and investors.