First: Recording granting loans to customers

Example 1
Delta bank granted 4m loan to individual (10% , due after 1 year) and 16m to business (16%, due after 14
months).
Record
1-Dr. loans to customers- individuals 4m
Cr. Cash/ customers' current accounts 4m

2-Recording interest when due at the end of the year:

Dr. loan interest receivable 4m X 10% X1= 0.4m
Cr. Loan Interest income 0.4m

3-At the end of the year, the loan and interest are collected:
Dr. cash 4m + 0.4m = 4.4m
Cr. Loans to customers- individuals 4m
loan interest receivable 0.4m

and the same for loans to businesses

Example 2
Assume in the previous example, it was the policy of the bank to deduct the interest upon handing the loan
to the customer. How to record this?
1-Dr. loans to customers- individuals 4m
Cr. Cash/ customers' current accounts 4m
2- Dr. Interest receivable 0.4m
Cr. Interest income 0.4m
3- Customers' current account 0.4m
Cr. Interest receivable 0.4m
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Example 3
Assume Alqanal bank granted a business 12m loan (16% annual rate), the loan agreement involves paying
the principal on quarterly installments over 2 years and the interest as well.
Record
1- Dr. Business X loan 12m
Cr. Cash/ current acc. Of Business X 12m

2-At the end of the quarter and every quarter, the business pay to the bank:
Dr. cash 0.98m**
Cr. Loan Interest income 0.48m
Business X loan 0.5m

**= 12m/24= 0.5m installment of the principal + 12m X 16% X 3/12= 0.48m

Example 4
Assume Alfa bank when assessed the customers' outstanding loans of 126m, found 32m belong to customers
who experience persistence financial difficulties and there is a possibility that they can not pay back. In
addition, an amount of 13m with customers who were declared bankrupted.
Record

For the loan that may not be collected, the bank should form a provision for uncollectible loans:
Dr. Provision for uncollectible loans (like a loss) 32m
Cr. Customer loans 32m

Then
Dr. Income summary acc. 32m
Cr. Provision for uncollectible loans (like a loss) 32m
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For the bankrupted customers, the loans are considered bad debt:
Dr. Bad debt loans 13m
Cr. Customers' loans 13m
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Then closed in income summary acc.

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Dr. Income summary acc. 13m
Cr. Bad debt loans 13m

Example 5
Tamweel bank rescheduled a loan of 14m (10%) which is due, by increased it to 16m due after 14 months
and at an interest 20%.
Record this settlement

Dr. Customer loan (the new loan) 16m

Cr. Customer loan (the old loan) 14m
Cash/ customer's current acc. 2m

And when the interest is due:

Dr. Interest receivable 16mX 20% X 1year= 3.2 m
Cr. Interest income 3.2 m

When collected from the customer's acc.

Dr. customer's current acc. 3.2m
Cr. Interest receivable 3.2m

Problems
P1
Alsharq bank granted L.E 200,000 to Afaq Company on Jan. 2016 due on July 2017 and annual interest 12%
paid every 3 months. On due date, Afaq could not pay and reached an agreement with the bank by which,
this loan is scheduled in a new loan and the due date is extended to Dec. 2017 and the interest rises to 18%.
THE new agreement was implemented. Record

P2
Suez Canal bank granted 40m loan to individual (12% , due after 2 year) and 230m to business (18%, due
after 14 months). At the end of the year it was found that 24m loans has an influential possibility not to be
collected and an amount of 15m with customers who were declared finally bankrupted by court.
Record.

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P3
United bank granted a business 84m loan (10% annual rate), the loan agreement involves paying the
principal on semi annual installments over 3 years and the interest as well.
Record

P4
Assume Alqanal bank granted a business 12m loan (16% annual rate), the loan agreement involves paying
the principal on monthly installments over 2 years and the interest as well.
Record

P5
Assume Alqanal bank granted a business 12m loan (16% annual rate), the loan agreement involves paying
the principal on maturity date in full while the interest is to be paid monthly.
Record

Second: Recording Checks' Operations

Example 1
The customers of Tamweel Bank deposited checks drawn for their interest on other banks equals 24m
and the banks deducted commission 40,000.

When receiving checks:

Dr. Due from other banks- Bank X 24m
Cr. Customers' checks 24m

When cleared:
Dr. Cash 24m
Cr. Due from other banks- Bank X 24m

Then the amount added to the customer's acc. In our bank:

Dr. Customers' checks 24m
Cr. Customers' current acc. 23, 960,000
Commission income 40,000
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Example 2
The customers of Tamweel Bank issued checks drawn on the bank to other people equals 36m.

When the people submit the checks to Tamweel bank to clear:

Dr. Customers' current acc. 36m
Cr. Cash 36m

Problems
P1
The customers of Audi Bank deposited checks drawn for their interest on other banks equals 21m and
the banks deducted commission 114,000. Record and show the effect on customers' current acc.
Balance.

P2
The customers of Afaq Bank deposited checks drawn for their interest on other banks equals 218m
and the banks deducted commission 26m. Record and show the effect on customers' current acc.
Balance.

P3
The customers of Delta Bank deposited checks drawn for their interest on United bank equals 90m,
112m drawn on Al Ahli bank and 37m on NBD bank. Checks were cleared and the banks deducted
commission 26m.
Record and show the effect on customers' current acc. Balance.

P4
The customers of HSBC Bank issued checks drawn on the bank to other people equals 260m and the
bank deducted 8.3m as cost of this service from customers' accounts.

P5
The customers of Credit Agricole Bank issued checks drawn on the bank to other people equals 118m
and the bank deducted 0.63m as cost of this service from customers' accounts.