Post a loan

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Accounting for a loan consists of a series of operations, based on an international valuation standard (IFRS), whose objective is to record this in the company's accounting, so that the true image is reflected.

In a simple way, this process consists of a series of notes that reflect the different phases from when they lend us the money, until we return it. Normally they are the moment of the granting and the payment of the different principal and interest installments of the loan. All this following the indications of international standards (IFRS-IFRS). To do this, a series of calculations must be performed.

Post a loan. Amortized cost

Many people fear having to book a loan, especially because they don't know exactly how to do it. In most countries in the world, accounting standards (which are based on IFRS-IFRS) include the concept of "amortized cost". But what exactly is it and what is it for?

Simply explained, it is a way of calculating the financial cost of a loan that takes into account all the cats that are included. Thus, when our bank grants us a loan, it informs us of the so-called TIN or nominal interest rate. Many believe that this is the cost of the loan and yet nothing could be further from the truth.

There are certain expenses to take into account, such as opening or registration fees and some are not included in the Annual Equivalent Rate or APR. Hence, we must calculate that real effective interest rate which, in turn, allows us to know the amortized cost of the loan in each period.

The loan posting process

With the diversity of international regulations and accounting and tax applications in each country, it is difficult to write about how to account for a loan. But there are some common points to keep in mind. We must differentiate small companies from large ones. In the former, certain licenses are usually allowed, in the latter not so much. All this with the aim of preserving the true image of the company.

Small or medium-sized companies usually have adapted accounting standards. We cannot overcomplicate its management because resources are much more limited. For this reason, it is usually allowed that in them that expense included in the loan is taken directly to the income statement. In this way, they can use their own nominal interest, since it is equivalent to cash. The large ones are usually governed by the amortized cost and in the small ones that is optional, although sometimes recommended.

A simple example

Let's imagine a loan of 100,000 currency units (CU) at 5% interest. The expenses are due to an opening fee of 1% on capital and CU500. for the record. We will not complicate it further, as it is not necessary.

As we see in the table, the nominal interest or TIN is 5% but the equivalent annual cash (not to be confused with the APR) is 5.5% due to expenses. In this way, the first table, that of the bank, serves as a reference for an SME, which must show the total expenditure at the time of the concession. This would be CU1,000. (1% of 100,000) and CU500 The annual fee is calculated according to the French method.

In the case of large companies, the table to be used would be the amortized cost table (the one below), which takes into account effective interest and not nominal interest to calculate interest. In this case, the expense is spread over the duration of the loan. This way of accounting for a loan is much more realistic and optional for all companies.

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