The advanced parameter is used when interest rates changes periodically.
To enable advanced parameters,
Go to Gateway of Tally > F11: Features > Accounting Features > Set Activate Interest Calculation to Yes. > Set Use Advanced Parameters to Yes.
In the Interest Parameters screen of the party ledger,
Set Calculate Interest Transaction-by-Transaction to Yes to calculate interest for each transaction.
Set Override Parameters for each Transaction to Yes to display the Interest Parameters screen while recording the transaction. The defined parameters can be modified during voucher entry.
Set Override Advanced Parameters to Yes.
Set the option Include Transaction Day for Interest Calculation? to Yes to calculate interest from the date of transaction.
Enter the rate of interest in the field Rate.
Select the Interest Style, as required. The rate of interest will be calculated on the basis of the interest style applied.
Select the balance on which the interest has to be calculated. Interest can be calculated on credit balance, debit balance or both credit and debit balances.
Select the applicability of the interest as required. If Past Due Date is selected, then the number of days after which interest has to be applied can be specified.
In the Calculate From field, select the date from which interest is applicable.
Select the rounding method applicable from the Rounding Methods list. The amount can be rounded off normally or upward or downward. If you do not want any rounding method, select Not Applicable.
Define interest parameters for different slabs of interest rate, as required.
The Interest Parameters screen appears as shown below:
To view the report on Outstanding balances,
Go to Gateway of Tally > Display > Statements of Accounts > Interest Calculations > Ledgers
Select the required ledger.
Go to Gateway of Tally > Display > Statements of Accounts > Interest Calculations > Ledger
Press F1: Detailed to view the calculation and period.
Note: In case if part of the amount is settled, the interest is calculated on the remaining balance.
In the party ledger master, Set the Interest Parameters for the ledger to calculate on Date Specified During Voucher Entry.
While recording an voucher entry/invoice, set the Interest Parameters as shown below:
To view the interest amount:
Go to Gateway of Tally > Display > Statements of Accounts > Interest Calculations > Ledger
We have seen the reports on interest amounts calculated in different ways but these have not been brought into books! They simply give you the interest implications. You must book them now.
Use Debit notes for Interest receivables and Credit Notes for Interest Payable. Interest is calculated on Simple or Compound basis and separate classes should be used for these.
Set up Debit Notes. Credit Notes will behave the same way.
Go to Gateway of Tally > Accounts Info > Voucher Types > Create/Alter
Alter the Voucher Type Debit Note.
Enter the name of the class in the field Name of Class field.
Similarly, create a Class – Compound Interest and set Amounts to be treated as Compound Interest to Yes
Save the Voucher Type. Create a ledger Interest Received under the group Indirect Income.
Go to Gateway of Tally > Accounting Voucher
Select Ctrl+F9: Debit Note
There are two situations for interest adjustment:-
Simple Interest – Interest amounts are not debited onto the same bills. Create a fresh reference for it.
Compound Interest – Amounts are auto-debited to the selected bills. Bill-wise details will not appear in this case.
Interest on balances only
Debit the party ledger
Credit the ledger Interest Received grouped under indirect income
When you debit the party account, a list of bills for which interest applicable pops up. Select the bills to adjust. Note that even cleared bills appear.
Select the respective interest bills from the list . The debit amount is filled up with the total. Select New Ref in the bill-wise allocation. In the interest sub-screen, ensure that the rate of interest is 0. Now, Credit Interest Received. The amount is already filled in.
Your voucher will resemble the one below:
Entries for compound interest are exactly the same as Simple Interest where all you do is select the Voucher Class Compound Interest. Also the Bill-wise details popup sub-screen does not come up as the amounts are added onto the bills.
Select the required bill from the list and complete a Debit Note.
The Ledger Outstandings will be as shown below:
The Bill reference CP/00466993 is the invoice onto which interest has been compounded.
A new Reference no 2 has been created for Simple Interest due from CP Ltd.
Again, the issues are Simple and Compound Interest
Make the following entries in a Debit note with Compound Interest Voucher Class
Debit bank account (the amount is automatically filled up with the calculated interest)
Credit Interest Received
The Bank Account has been increased by the amount of interest due and the Income account of Interest Received also credited.
Make the same entry as above.
However, since it has the effect of increasing the Bank Ltd account with the amount due (compound effect), you must make a journal entry to reverse it. The reversal entry would be as shown below:
Debit Interest Receivable (a current asset account)
Credit bank account
Use a normal Journal voucher for this entry.
We have to necessarily debit the bank account in first place to take advantage of the auto filling of the interest amount.