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What account on the income statement and balance sheet accounts for future loan losses and what...

What account on the income statement and balance sheet accounts for future loan losses and what is the effect on capital?
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Answer #1

In the Balance sheet a loan loss reserve should be created and same amount should be reduced from the capital. So expected future loss causes reduction in capital as loan loss reserve is created out of the capital.
In case of loss there is no impact on earnings. However if more than expected earnings is earned from this type of loans it can report enhanced earnings in the income statement.

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