What does non accrual status mean?

Non-accrual status refers to a situation in which a financial institution, such as a bank, ceases to recognize interest income on a loan that is deemed unlikely to be repaid. This typically occurs when a borrower has not made payments for a certain period, indicating a higher risk of default. By placing a loan in non-accrual status, the lender reflects the potential loss on its financial statements, ensuring that income is only reported when it is reasonably assured to be collected.