Banking · Income Recognition and Prudence Concept
The 'Prudence Concept' in bank accounting ensures that income is not recognized before it is realized, especially for non-performing assets (NPAs). When an account is classified as an NPA, what is the mandatory treatment of the unrealized interest that was previously recorded on an accrual basis?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It is capitalized and added to the principal balance of the borrower's loan account.
- 2It is transferred to the Statutory Reserve to act as a cushion against the loss.
- 3It must be reversed from the income account and credited to an Interest Suspense Account.✓
- 4It must continue to be shown as income in Schedule 13 until the loan is written off.
Correct answer
It must be reversed from the income account and credited to an Interest Suspense Account.
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