DCB reconciliation: the seven reasons demand, collection and balance stop tying

What each letter actually means, because this is where it starts

Demand is what the lender called for in the period. Not what accrued, and not what was due in some abstract sense — what was demanded, on a date the lender fixed.

That distinction does the most work in this whole subject. Interest accrues daily; it becomes demand on the instalment date. A DCB built from accrual will never tie to a DCB built from demand, and both are defensible statements about the same book.

Collection is what was received and appropriated, in the period, against that demand.

Balance is what remains demanded and unpaid — the arrears — not the outstanding principal. This is the second most common confusion: a DCB closing balance is an overdue figure. A statement whose closing balance equals total outstanding is not a DCB.

So the identity, stated honestly, is about arrears:

Opening arrears + demand raised − collection against demand = closing arrears

The seven things that break the identity

1. Interest accrued but not yet demanded

The accrual is in the ledger from the day it happened; the demand is raised on the instalment date. Between those two dates the general ledger and the DCB disagree by exactly the accrued-not-demanded amount, and both are right.

Not a break — a missing term. A DCB that reconciles to the GL needs an accrued but not demanded line, or it needs to state that it is a demand-basis statement and the GL is an accrual-basis one.

2. A receipt appropriated to something the demand did not include

A payment settles charges, then penal, then interest, then principal — whatever the appropriation order is. If a borrower pays ₹10,000 against a demand of ₹9,000 and ₹1,000 lands on a penal charge that was never raised as demand, collection exceeds demand and the arrears go negative.

The identity needs collection split by what it settled, against demand and outside it. One collection figure cannot reconcile against a demand that has a different composition.

3. Penal charges, which are not interest and not principal

A penal amount is a charge, levied on receipt basis for GL purposes, non-compounding, and not added to principal — see penal charges are not interest. So a penal levy appears on the borrower's statement as something owed and does not increase the principal demand.

A DCB that adds penal into the demand column and then nets collections against it will tie. A DCB that shows penal as a shadow entry and collects against it in the same column will not. Both designs exist and they produce different closing balances from the same facts.

4. A reversal

Reverse a receipt and you must reverse what it settled. The collection column reduces — that part is easy — and the arrears it had cleared come back, which means an instalment that was PAID is now PENDING and the period's closing balance moves retrospectively.

If the reversal is dated into a period you have already reported, the DCB for that period changes after the fact. That is correct behaviour and it is the single most common reason a re-run of last month's DCB does not match the one you circulated.

5. A backdated receipt landing under entries already posted

The borrower paid on the 3rd; it was keyed on the 8th. Every accrual between those dates was computed on a principal the receipt has since changed. The receipt is right and the accruals are stale.

The DCB will tie for the period and the arrears ageing inside it will be wrong, because the DPD on which the demand ageing rests was derived from a position the payment has altered. Reprocessing is what restates it, and a book that never reprocesses accumulates these silently.

6. Waivers and write-offs

A waived penal charge, a written-off balance: demand was raised and will never be collected, and the arrears have to come down without a collection. That needs its own column. Netting a waiver into collection makes collection efficiency look better than it was, which is the exact distortion the next page is about — collection efficiency.

7. Advance money, held and not yet applied

A borrower pays before the demand exists. The cash is in the bank, the demand is not raised, and the money cannot be collection against a demand that has not happened.

If it is netted into collection, the period shows collection exceeding demand and the next period shows a demand with no collection against it. Advance is a liability until the demand it will meet is raised, and it needs to sit in its own line until then.