Mortgage Loan: Receivable

Loan - Mortgage Loan: Receivable

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Managing receivables is underlying in every firm's cash flow as it is the number expected to be received from customers for products or services in case,granted (net realizable value). Receivables are classified as current or noncurrent assets. These transactions are recorded on the balance sheet. Current receivables are cash and other assets a enterprise 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 enterprise longer than a year. Apart from the well known noncurrent assets, banks and other mortgage lending institutions have a mortgage receivable account that is reported as a noncurrent asset.

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Bad debts also known as uncollectable price is thought about as a contra asset (subtracted from an asset in the balance sheet). Contra asset increases with credit entries and decreases with debit entries and will have a credit balance. Bad debt is an price account that represents accounts receivables that are not expected to be collected by a company. Cash reduction is offered to a customer to entice prompt payment. When a customer pays a bill within a stipulated time which commonly is 10 days, a cash reduction is offered noted as 2/10 which means that if the account 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 revenue statement as a deduction from sales revenue.

Banks and other financial institutions that provide loans perceive or expect to have losses from loans they lend to customers. As the country witnessed during 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 accident and banks repossessing houses and losing money. For better loss recovery, banks secured accounting procedures to support bankers to narrative precise loan transactions at the end of each month or as per the bank's mortgage cycle. Among those credit risk management systems, banks created a loan loss withhold account and mortgage loss provisions. The mortgage lenders also have a Mortgage Receivable account (noncurrent asset). By definition, a mortgage is a loan (sum of money lent at interest) that a borrower uses to buy asset such as a house, land or building and there is an business transaction that the borrower will pay the loan on a monthly basis and loan installments are amortized for some stipulated years.

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