Mortgage Loan: Receivable

Loan - Mortgage Loan: Receivable

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Managing receivables is basic in every firm's cash flow as it is the amount anticipated to be received from customers for products or services provided (net realizable value). Receivables are classified as current or noncurrent assets. These transactions are recorded on the equilibrium sheet. Current receivables are cash and other assets a company expects to receive from customers and use up in one year or as per operating cycle, whichever is longer. Accounts receivables are whether collected as bad debt or cash discount. Noncurrent assets are long-term, meaning they are held by the company longer than a year. Apart from the well known noncurrent assets, banks and other mortgage lending institutions have a mortgage receivable inventory that is reported as a noncurrent asset.

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Bad debts also known as uncollectable charge is considered as a contra asset (subtracted from an asset in the equilibrium sheet). Contra asset increases with credit entries and decreases with debit entries and will have a credit balance. Bad debt is an charge inventory that represents accounts receivables that are not anticipated to be collected by a company. Cash allowance is offered to a customer to entice prompt payment. When a customer pays a bill within a stipulated time which usually is 10 days, a cash allowance is offered noted as 2/10 which means that if the inventory is paid within 10 days the customer gets a 2 percent discount. The other credit terms offered could be n30 which means the full amount: has to be paid within 30 days. Cash discounts are recorded in the income statement as a deduction from sales revenue.

Banks and other financial institutions that provide loans caress or expect to have losses from loans they lend to customers. As the country witnessed while the credit crunch, banks issued mortgages to customers who, due to loss of jobs or other facts surrounding their circumstances at that time could not repay their mortgages. As a result, mortgages were defaulted causing foreclosure urgency and banks repossessing houses and losing money. For best loss recovery, banks secured accounting procedures to help bankers to article literal, loan transactions at the end of each month or as per the bank's mortgage cycle. Among those credit risk supervision systems, banks created a loan loss keep inventory and mortgage loss provisions. The mortgage lenders also have a Mortgage Receivable inventory (noncurrent asset). By definition, a mortgage is a loan (sum of money lent at interest) that a borrower uses to buy property such as a house, land or construction and there is an bargain that the borrower will pay the loan on a monthly basis and loan installments are amortized for some stipulated years.

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