Regardless of whether the CU is using the modified cash basis or the accrual basis for accounting, loan late fees should be recorded as income when they are received, not accrued monthly, as per the following information obtained from the NCUA Accounting Manual:

Section 2070 – PRINCIPLES AFFECTING THE RECORDING OF INCOME AND EXPENSES

2070.1 – UNDER THE MODIFIED CASH BASIS OF ACCOUNTING 

The principles and standards of accounting relating to income, expenses, gains and losses of federal credit unions following the modified cash basis of accounting are set forth below.

2070.12 – BASIS FOR RECORDING INCOME

Income should be recorded periodically as received.  FEES AND LATE CHARGES SHOULD BE RECORDED AS INCOME WHEN RECEIVED.

2070.2 – UNDER THE ACCRUAL BASIS OF ACCOUNTING

The principles and standards of accounting applicable to the modified cash basis of accounting apply under the accrual basis of accounting, EXCEPT as follows:

2070.2.1 – INCOME ON LOANS

Interest income earned on loans outstanding (where material) should be recorded as an asset and included as income.