Question

What is the difference between net charge-offs (NCOs, sometimes called write-offs) and the provision for loan loss (PLL)? What is the purpose of the PLL account?

Answer 1

Answer : Difference between net charge off Vs Provision for loan loss are :

• Net charge off is the difference between the gross charge off and recoveries . It is debt that is unable to recovered by the company . Where as Provision for loan loss means an expense that has been set aside in order to recover the loan losses in the future time period.
• Example of net charge off is that if any company has written off bad debt than it is known as gross charge off when some recoveries has been received than it is deducted from gross and we received net charge off.Examples of provision for loan losses are recovered of bad loan , customer default etc.

Purpose of loan loss provision account are :

• It is an adjustment to loan loss reserve account.
• These provision are created to recover number of factors associated with potential loan losses.
• Bad loans, Customer default in paying money, renegotiated loan amount.
• These provision are created to overcome uncertain expenses or losses in a particular time period.