23.1.2 Accrual Method

The Accrual Method is used to determine how much accrual has occurred over the modeling bucket. The accrual method is determined by the code value in the detail record. Interest in advance instruments calculates interest accruals from the current payment date to the next payment date. Interest in arrears instruments calculates interest accruals from the current payment date to the previous payment date.

The Interest Cash Flow is divided by the number of days between these two dates to determine a daily accrual for each day within the modeling term. Daily interest accruals are summed by modeling bucket.

Daily Interest Accrual = Interest Cash Flow/ number of days in payment.

The following example demonstrates an interest accrual for an arrears record:

Table 23-1 Interest Accrual

Payment Date	Interest Cash Flow	Days in Payment	Daily Accrual
January 15	950	31	30.64
February 15	900	31	29.03
March 15	850	28	30.36

Table 23-2 Interest Accrual

Payment Date	Interest Cash Flow	Days in Payment	Daily Accrual
January 15	950	31	30.64
February 15	900	31	29.03
March 15	850	28	30.36

Modeling Start Date = January 1

Table 23-3 Interest Accrual Calculation

Bucket End Date	Accrual Calculation	Interest Accrual
January 31	15 days @ 30.64 + 16 days @ 29.03	924.08
February 28	13 days @ 29.03 + 15 days @ 30.36	832.79
Bucket End Date	Accrual Calculation	Interest Accrual