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How exactly would you propose the accounting be done for loans? Should a bank realize a loss equal to the amount of loan at the time the loan is made, and then
by pgwhalen 4y ago
How exactly would you propose the accounting be done for loans? Should a bank realize a loss equal to the amount of loan at the time the loan is made, and then consider all future payments as profit?
(Clearly not)
- chii 4y agobut if a loan is collateralized, the bank can consider the loan an asset, since the collateral will make the loan whole if the borrower defaults. But for credit cards, which usually is not collateralized, you cannot do that. Therefore, it makes sense to recognize the cost of loan-loss provisions as a cost.
- pgwhalen 4y agoGood point, my comment was only relevant for uncollateralized loans.