Example of Multiperiod Accounting
The subledger multiperiod accounting and user-defined formula features provide the ability to satisfy the FASB 91 accounting requirement. This requirement of deferred recognition of fee and direct loan cost is met by modifying the recognition of fee amounts with user-defined formulas.
Example
A personal loan was originated with the following information:
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Origination date: 01-Jul-2016
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Origination fee: USD 300.00
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Loan duration: 6 months
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Maturity date: 31-Dec-2016
Upon loan origination on 01-JUL-2016 the origination fee must be booked as unearned income:
Initial Journal Entry for Loan Fee
This table contains the journal that is created when the loan is originated.
|
Entered DR (USD) |
Entered CR (USD) |
---|---|---|
Receivable |
300.00 |
|
Unearned Fee Income |
300.00 |
The unearned fee income must be split over the life of the loan. Each portion must be recognized as income in the corresponding accounting periods, between Jul-2016 and Dec-2016. The amounts in each period would depend on the proration formula used. For example:
Monthly Journal Entry for Loan Fee
This table contains of the journal achieved using a user-defined formula.
|
Entered DR (USD) |
Entered CR (USD) |
---|---|---|
Unearned Fee Income |
50.00 |
|
Loan Fee Income |
50.00 |
Using Multiperiod Subledger Accounting Rules
Accounting Hub users can define subledger accounting rules to create the multiperiod accounting entries. For example:
This table contains the usage of journal lines rules, account rules and the usage associated with multiperiod accounting.
Journal Line Rules |
Account Rules |
Usage |
---|---|---|
Unearned Fee Income
The Entered Amount accounting attribute is mapped to a source that provides the fee amount. |
Unearned Fee Income Account |
Journal line rule for the deferral entry. Used to generate a credit line to the unearned fee income account. |
Loan Fee Income
The Entered Amount accounting attribute is mapped to a formula to prorate the fee amount. |
Loan Fee Income Account |
Journal line rule for the recognition entry. Used by the Create Multiperiod Accounting process to generate future entries with prorate amounts, such as the CR 50.00 (USD) in the example. |
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Define a user-defined formula to calculate the total entered amount to be recognized from the multiperiod start date until the end of current accounting period.
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Assign the user-defined formula to the Entered Amount accounting attribute.
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The Create Multiperiod Accounting process calculates entered amount for the multiperiod entries as:
Entered Amount = Amount Returned by User-Defined formula - Multiperiod Recognized Entered Amount
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Where the:
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Multiperiod Recognized Entered Amount is calculated and stored in the Accounting Hub data model as the total amount recognized for the transaction in prior periods.
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The approach handles any rounding differences in prorated entered currency amounts.
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Sample User-Defined Formulas
These sample user-defined formula definitions can be used to prorate the loan fee amount.
Prorate by Number of Periods
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To prorate the entered amount evenly across each period:
" Multiperiod Original Entered Amount" * NumberofGLPeriod ("Origination Date", "Last Day of Current Accounting Period") / NumberofGLPeriod ("Origination Date", "Maturity Date")
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Where the:
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Multiperiod Original Entered Amount, Origination Date and Maturity Date are standard application sources (Application: Loans).
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Last Day of Current Accounting Period is a system source (Application: Subledger Accounting).
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NumberofGLPeriod is a predefined numeric function.
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The entered amount for the multiperiod journal would be calculated as follows:
This table contains the Multiperiod Accounting amount computed if recognition is defined to Prorate by Number of Periods.
Accounting Date |
Number of Periods Since Multiperiod Start Date |
Multiperiod Recognized Entered Amount (A) |
Amount Returned from User-Defined Formula (B) |
Multiperiod Journal Entered Amount (B-A) |
---|---|---|---|---|
31-Jul-16 |
1 |
0.00 |
300.00*1/6=50.00 |
50.00 |
31-Aug-16 |
2 |
0.00+50.00=50.00 |
300.00*2/6=100.00 |
100.00-50.00=50.00 |
30-Sep-16 |
3 |
50.00+50.00=100.00 |
300.00*3/6=150.00 |
150.00-100.00=50.00 |
31-Oct-16 |
4 |
100.00+50.00=150.00 |
300.00*4/6=200.00 |
200.00-150.00=50.00 |
30-Nov-16 |
5 |
150.00+50.00=200.00 |
300.00*5/6=250.00 |
250.00-200.00=50.00 |
31-Dec-16 |
6 |
200.00+50.00=250.00 |
300.00*6/6=300.00 |
300.00-250.00=50.00 |
These columns are calculated by the Create Multiperiod Accounting process:
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Amount Returned from User-Defined Formula (B)
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Multiperiod Journal Entered Amount (B-A)
Prorate by Number of Days
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To prorate entered amount by the actual number of days in each period:
" Multiperiod Original Entered Amount" * ("Last Day of Current Accounting Period" - "Origination Date" + 1) / ("Maturity Date" - "Origination Date" +1)
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The entered amount for the multiperiod journal is calculated as follows:
This table contains the Multiperiod Accounting amount computed if recognition is defined to Prorate by Number of Days.
Accounting Date |
Number of Days Since Multiperiod Start Date |
Multiperiod Recognized Entered Amount (A) |
Amount Returned from User-Defined Formula (B) |
Multiperiod Journal Entered Amount (B-A) |
---|---|---|---|---|
31-Jul-16 |
31 |
0.00 |
300.00*31/184.00=50.54 |
50.54 |
31-Aug-16 |
62 |
0.00+50.54=50.54 |
300.00*62/184.00=100.09 |
100.09-50.54=50.55 |
30-Sep-16 |
92 |
50.54+50.55=100.09 |
300.00*92/184.00=150 |
150.00-100.09=48.91 |
31-Oct-16 |
123 |
100.09+48.91=150.00 |
300.00*123/184.00=200.54 |
200.54-150.00=50.54 |
30-Nov-16 |
153 |
150.00+50.54=200.54 |
300.00*153/184.00=249.46 |
249.46-200.54=48.92 |
31-Dec-16 |
184 |
200.54+48.92=249.46 |
300.00*184/184.00=300.00 |
300.00-249.46=50.54 |
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Note that rounding differences, if any, are included in the resulting entered amount for the multiperiod journals.
Using Multiperiod Accounting for Foreign Currency
In the multiperiod accounting journal for foreign currency, the accounted amount is derived from the accrued amount / entered amount on the accrual line.
To calculate the accounted amount for multiperiod recognition entries, follow this logic:
- Calculate the unrounded entered amount to be recognized from the multiperiod start date to the last day of the current period.
- Calculate the unrounded entered amount to be recognized for the current period as Step 1 minus the total rounded entered amount from all multiperiod recognition lines in previous periods.
- Calculate the unrounded accounted amount for the current period as Step 2* accrual accounted amount/accrual entered amount.
- The last multiperiod recognition entry will include a rounding difference, so it's calculated as: 'accrual amount' minus 'total amount from all multiperiod recognition lines in previous periods', for both entered and accounted amounts.
Here's an example illustrating the exact amount on a customer's invoice.
Invoice:
Accrual amount in USD | Accrual amount in JPY | MPA start date | MPA start date |
4016.25 | 457612 | 1-Jan-21 | 31-Dec-21 |
Formula (Prorate by number of GL period)
(("Multiperiod Original Entered Amount" * NumberOfGLPeriod("Invoice Distribution Multiperiod Accounting Start Date","Last Day of Current Accounting Period")) / NumberOfGLPeriod("Invoice Distribution Multiperiod Accounting Start Date","Invoice Distribution Multiperiod Accounting End Date"))
Period | Entered amount to be recognized from Day1 to last day of current period (USD) | MPA journal unrounded entered amount (USD) | MPA journal unrounded accounted amount (JPY) | MPA journal rounded entered amount (USD) | MPA journal rounded accounted amount (JPY) | Total Recognized amount to-date (USD) | Total Recognized amount to-date(JPY) |
1 | 334.6875 | 334.6875 | 38134.33333 | 334.69 | 38134 | 334.69 | 38134 |
2 | 669.375 | 334.685 | 38134.04848 | 334.69 | 38134 | 669.38 | 76268 |
3 | 1004.0625 | 334.6825 | 38133.76363 | 334.68 | 38134 | 1004.06 | 114402 |
4 | 1338.75 | 334.69 | 38134.61818 | 334.69 | 38135 | 1338.75 | 152537 |
5 | 1673.4375 | 334.6875 | 38134.33333 | 334.69 | 38134 | 1673.44 | 190671 |
6 | 2008.125 | 334.685 | 38134.04848 | 334.69 | 38134 | 2008.13 | 228805 |
7 | 2342.8125 | 334.6825 | 38133.76363 | 334.68 | 38134 | 2342.81 | 266939 |
8 | 2677.5 | 334.69 | 38134.61818 | 334.69 | 38135 | 2677.5 | 305074 |
9 | 3012.1875 | 334.6875 | 38134.33333 | 334.69 | 38134 | 3012.19 | 343208 |
10 | 3346.875 | 334.685 | 38134.04848 | 334.69 | 38134 | 3346.88 | 381342 |
11 | 3681.5625 | 334.6825 | 38133.76363 | 334.68 | 38134 | 3681.56 | 419476 |
12 | 4016.25 | 334.69 | 38134.61818 | 334.69 | 38136 | 4016.25 | 457612 |
Prerequisites
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Provide date format sources to store the multiperiod start and end dates in transaction objects.
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For the event class that supports multiperiod accounting, assign these sources to the accounting attributes:
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Multiperiod Start Date
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Multiperiod End Date
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Define the multiperiod class in the subledger accounting lookup. The multiperiod class is used to identify the journal line for which the amount is prorated across multiple accounting periods.
Accounted amounts for multiperiod journals are calculated by the Create Multiperiod Accounting process prorating proportionally to the entered amount. Rounding error differences are included in the prorated amount.
Multiperiod transaction data must be available in transaction objects until the last multiperiod entry has been accounted in final status.