COMMERCIAL can perform dual-accrual accounting by establishing a shadow note. The shadow note may carry the billable interest rate and drive the billings. The loan and the shadow record may be reconciled periodically and at loan maturity. At reconciliation, the differential interest between the loan and the shadow can be capitalized to the loan’s Current Loan Balance. Some examples of how dual-accrual accounting may be used include:

• Cost of Funds Accounting
• Asset Based Non-accruals (non-performing loans)
• Renegotiated Loan (impaired loan) processing
• Service Fees Accounting

The method behind the dual-accrual structure is to allow a primary loan to continue accruals at an established interest rate while at the same time a second structure, a shadow of the primary loan, will accrue at a different rate. The shadow’s interest rate may be higher or lower, the same as the loan, as represented by non-performing loans, or a zero rate. This action creates a differential interest balance between the primary loan and the shadow. Accruals of the primary loan affect general ledger, while shadow accruals are generally memo posted; however, shadow accruals can be directed to separate general ledger controls and can affect general ledger if necessary.

COMMERCIAL automates advances, billings, and payment application to the shadow loan. Transaction allocations to the shadow note are maintained at a constant ratio, ensuring that no change occurs in the ratio of loan-to-shadow-note balances. Customer billing may occur from either the loan or the shadow loan.