Debt Accounting

A series of chain jobs are provided to perform most accounting necessary for debt instruments from the setup of initial accounts, payments & billings, accruals, amortizations, certain lease-end accounting events, and a yearly maintenance of current and long term accounts. It is recommended that this accounting be automated, but all of it can be performed manually in the same manner or in a custom configuration if desired.

Control of this automated accounting comes from several locations:

1. Individual debt instrument settings

2. The Debt Type rollup that has to be associated with each debt instrument

3. Batch Parameters

4. Posting Codes used by Event Types established for a Debt Type

Later sections for "Advanced Setup" and Advanced Batch Processing – "Chain Jobs" include detail configurations for #2 and #3.  The General Accounting User Guide includes details of the delivered event types for Debt Management in the "Debt – Accounting Model" section. When this Debt Management User Guide describes each of the fields on the debt documents, that information covers #1. The final location #4 (Posting Codes) includes a large number of delivered posting codes that are all in the A300 – 349 series for Loans, the A350 – 399 series for Leases, and the A400 – A449 series for Bonds.  These are all called out in the various event types for debt. Some are unique to debt while others are close copies of existing codes for easy report selection. There is no clearing fund concept with Debt Management as the posting codes used are discrete enough to isolate debt accounting activity and present it, or hide it, for reporting purposes. More details on these topics are provided later in the "Advanced Setup" section.

The four chain jobs are as follows:

1. Initial Debt Accounting

2. Debt Payment & Billing

3. Periodic Debt Accounting

4. Long Term Account Reclassification

When it comes to accounting for the two levels, Authorizations and Debt Instruments, there are options. The following options exist for Authorizations:

The three following options exist for Debt Instruments:

*Include special lease accounting such as down payments, purchase payments, and renewal penalty payments. Also includes a special bond payment known as a refunding payment.

** Includes special lease accounting such as guaranteed and unguaranteed residual balances.

There are events within the life of a debt instrument where there is no automated accounting provided. For these times, the accounting must be done manually. One very common event is the ending of a debt instrument early where either the debt is forgiven or paid all at once. A bond issue may have monies set aside in various accounts for later use. A leased asset may be returned at less than the agreed upon value, lost, or destroyed.

The following is a depiction of the basic accounting performed over the life of a debt instrument. The example is simplified with only a year-end accrual and yearly amortizations, both of which could be done more frequently.

The postings at activation by the Initial Debt Accounting Chain are primarily ones that will be decreased over the life of the debt instrument, but some will not be reduced. The entries are slightly different for each type of debt as shown below using the accounting models delivered for Debt Management. Entries have been consolidated, and all possibilities are included for clarity although some may not be possible (for example, discount and premium on a bond). Other ancillary postings such as fixed assets with leases and the distribution of bond proceeds are not depicted because those are optional and manual postings.

* Accounts decreased with payments and billings by the Debt Payment & Billing Chain

** Accounts decreased with amortizations by the Periodic Debt Accounting Chain

*** Account decreased by the Periodic Debt Accounting and Debt Payment & Billing Chains

**** Account decreased by the Long Term Account Reclassification Chain