What is it meant by "reversal" in this sentence?

Question

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Reversal of interest income accrued on non-performing
loans.

Answer 1

This goes back to the accounting theory that if you have an Account Receivable, you have to have some reasonable expectation of being able to collect it in order to count it as an asset.

Reversal here means that the interest had previously been accounted for as earned income, but that since the loan went bad and there is little probability that the company will actually collect it, they are "unearning" that income or reversing it.

Most finance companies will continue to accrue interest on a loan up to a point, say 60 days past due. After that point, they loan will go into a non- accrual status, meaning that they are not counting the interest on that loan as "income" because of the doubtfulness of ever actually collecting it.

Does that help?

Answer 2

When a firm or company maintains accounts on mercantile basis, it makes a provision for amounts due or payable as of a particular day, even though such amounts have not fallen due for payment on that day. This is to show the proper financial state of the firm/company as on that date.
Two such items provided for are the interest due on loans given and interest due on loans taken. In the case of the former, a provision is made in the books of account crediting profit and loss account by the accrued (i.e. calculated) interest amount on loans made, reckoned up to the date the accounts are made up. This accrued interest is charged to the party's account as amount of interest due.
If at a subsequent time, the interest so charged to the borrower becomes not realizable, then the earlier entry made of the interest amount, is debited to profit and loss account and credited to the borrower's account, so as to complete the double entry book-keeping principle.
Such a reverse transaction is called reversal of interest income.

Answer 3

Means You Ain't Got Squat. In The End.