CFM80140 - Old rules: loan relationships: authorised accounting methods: meaning of generally accepted accounting practice: debtors and creditors
Generally accepted accounting practice for accruals
This guidance applies to periods of account beginning before 1 January 2005
Most companies that do not have regular dealings in securities - companies other than insurance companies, banks or financial traders - will use an accruals method. Accounting practice depends on whether the company is a borrower (a 바카라 사이트˜debtor바카라 사이트™ in terms of the loan relationships rules) or a lender (a 바카라 사이트˜creditor바카라 사이트™ in loan relationships terms).
Debtor (borrower)
The accounting standard FRS 4 바카라 사이트˜Capital Instruments바카라 사이트™ applies to all companies issuing capital instruments whose accounts are intended to give a 바카라 사이트˜true and fair view바카라 사이트™, irrespective of the size or ownership of the company. The term 바카라 사이트˜capital instrument바카라 사이트™ includes all forms of debt as well as shares, so you would expect the accounts of a company that is the debtor in a loan relationship to follow FRS 4 for that loan relationship.
FRS 4 requires that the company allocate the costs of the debt (such as interest payments and expenses incurred in raising the finance) to periods over the term of the debt at 바카라 사이트˜a constant rate on the carrying amount바카라 사이트™. This accruals basis, sometimes called the economic accruals method, gives a constant rate of return. The amount of the debt is increased by the finance cost for the period (which is taken to the profit and loss account) and reduced by any payments actually made. See CFM23020 for more on FRS 4.
Creditor (lender)
There is no separate accounting standard for creditors, but FRS 18 바카라 사이트˜Accounting policies바카라 사이트™ requires that income and expenses should be recognised in the period to which they relate, irrespective of when payment is made. Where a company is the creditor in a loan relationship, generally accepted accountancy practice is to accrue interest, profits or losses over the period the debt is held. A number of methods may be appropriate - straight line, rule of 78 or economic accruals. The loan relationship will be shown as an asset, generally at cost less any provisions. There is more detail at CFM22030.