Accounting treatment of interest for loan with grace period

[Aleksandra Taseva]

Hi everyone,

I would appreciate your opinion regarding the accounting treatment of interest for a loan with following characteristics:
1. grace period for 18 months;
2. zero payments during the grace period - no interest or principal is paid;

Proposed accounting treatment:
During the grace period interest is calculated and posted in G/L as interest receivable and interest income.
The interest calculated during the grace period is due and payable in total after the end of the grace period.

Thank you all for cooperation.

 

[ItPaysTheBills]

I'm assuming from reading your post that you are accounting for the entity that made the loan.

I am not sure that the interest income can be recognized yet because it I am not sure that it is "earned" given that their is a stipulated grace period where no interest must be paid for 18 months. I'd probably debit a long term interest receivable and credit deferred interest income. Once the 18 month's is expired, I'd take the deferral to interest income.

Take everything I say with a grain of salt, though. I'm not that great of an accountant.