Booking The Principal Amount Using An Adjustment

When a loan contract is activated (i.e., when its status changes from pending start to active), an adjustment is created to book the principal amount. If the customer takes out a loan of 10,000, the adjustment's financial transaction looks as follows:

The following table illustrates the financial transaction which is created in the respective event:
Event GL Accounting Effect On Current Balance Effect On Payoff Balance Current Balance Payoff Balance
Loan contract is activated (and an adjustment is created to book the principal)

Long Term Loan Receivable 10,000

Cash <10,000>

 0 10,000 0 10,000

This adjustment is issued if:

  • The contract's contract type indicates a special role of Loan.
  • The loan contract's Total Amount to Bill contains an amount (i.e., the loan amount).
  • The adjustment type has been set up as follows:
    • The adjustment type's distribution code should reference the GL account to credit (e.g., Cash).
    • The adjustment type's FT algorithm reference Payoff Amt = Adj Amt / Current Amt = 0 (booking principal only impacts a customer's payoff balance).

Note that because this financial transaction doesn't have a current amount (the customer doesn't actually owe a current amount yet), there is no need to book anything to the short-term receivables distribution code.