In economics, the term "collateral" is used to refer to any form of security that guarantees the repayment of a loan. This could be an asset that the borrower owns such as a house or a car. If the borrower fails to repay the loan, the lender has the right to seize the collateral to recover the loan amount.

However, in accounting, the term "collateral" has a slightly different meaning. It refers to secondary security, not the primary security. This means that it is a backup form of security that the lender can use to recover the loan amount if the primary security is not sufficient to cover the loan. For example, if a borrower uses a house as the primary security and a car as the collateral, the lender can seize the car if selling the house does not cover the full loan amount.

Question

In economics, the term "collateral" is used to refer to any form of security that guarantees the repayment of a loan. This could be an asset that the borrower owns such as a house or a car. If the borrower fails to repay the loan, the lender has the right to seize the collateral to recover the loan amount.

However, in accounting, the term "collateral" has a slightly different meaning. It refers to secondary security, not the primary security. This means that it is a backup form of security that the lender can use to recover the loan amount if the primary security is not sufficient to cover the loan. For example, if a borrower uses a house as the primary security and a car as the collateral, the lender can seize the car if selling the house does not cover the full loan amount.

Knowee AI · Accepted Answer

In economics, the term "collateral" is used to refer to any form of security that guarantees the repayment of a loan. This could be an asset that the borrower owns such as a house or a car. If the borrower fails to repay the loan, the lender has the right to seize the collateral to recover the loan amount.

However, in accounting, the term "collateral" has a slightly different meaning. It refers to secondary security, not the primary security. This means that it is a backup form of security that the lender can use to recover the loan amount if the primary security is not sufficient to cover the loan. For example, if a borrower uses a house as the primary security and a car as the collateral, the lender can seize the car if selling the house does not cover the full loan amount.

in economics we use 'collateral' to use for any security for a loan taken but in accounts, it refers tothe secondary security and not the primary security

Question

Solution

Similar Questions

Upgrade your grade with Knowee