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RE: Accounting language to plain language - translation, please?
Subject:RE: Accounting language to plain language - translation, please? From:"Margaret Cekis" <Margaret -dot- Cekis -at- comcast -dot- net> To:<elizabeth -dot- sprague -at- maine -dot- rr -dot- com>, <techwr-l -at- lists -dot- techwr-l -dot- com> Date:Wed, 11 Jul 2012 21:54:59 -0400
Elizabeth Sprague asked about translating Accounting language to plain
language:
Here's the original text:
"On <my non-profit's> balance sheet the loan loss reserve is a contra
account to the Loans Outstanding asset that is equal to or greater than the
aggregate of the loan loss reserve ("LLR") assigned to each loan in the
portfolio. Increases to the contra-asset account is accompanied with a Loan
Loss Expense (or Provision for Loan Losses) entry on the income statement."
How would you translate into plain language?
______________________________________
Elizabeth:
I agree with Peter that you better start with definitions. The Loan Loss for
any loan is the amount of money the organization would lose if that loan is
not repaid. The Loan Loss Reserve is the percentage of the total possible
losses (from all the outstanding loans) that the organization is required to
have available to cover any losses that may occur. The Loan Outstanding
asset for a loan is the value of the asset (physical property like a lot or
house or car) that will be turned over to the organization if a loan is not
paid. As the value of the physical asset changes (like home values falling
during the recession or the value of a car going down as it gets older). The
contra account (the account used to balance that change in value) will be
credited (added to) or debited (have value taken away) based on the change
in the values of those assets. Just as the outstanding loan balance is
reduced when the person or organization who owes the loan gets smaller as
payments are made. I'm not sure that I have all of this right (I'm not an
accountant either), but it is possible to explain how accountants sort of
keep double accounts (what double-entry bookkeeping is all about) to make
sure that every change is counted twice (balanced). When one account has an
addition (such as a loan payment received), the matching or balancing
account (such as what is still owed on the loan) is reduced. HTH
Margaret Cekis, johns Creek GA
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