FAQ-1 : How do I enter the Interest Receivable / Payable amounts into books?

Or

The interest report shows only the interest implications, since the interest amount receivable / payable are not being entered into the books. How can this be accounted for in Tally.ERP 9 ?

Answer

The interest amounts calculated in different ways are shown in the Interest Calculation Report. However, these have not been brought into books and they simply give you the interest implications. You must book them if you want them to be entered into the books.

Entering Calculated interest amount

The calculated interest amounts are entered using the Debit and Credit Notes with Voucher Classes.

The Debit notes are used for the Interest receivable while the Credit Notes are used for the Interest payable.

Interest is calculated on a Simple or Compound basis and separate voucher classes should be used for them.

Set-up Debit/Credit Note Classes for Interest entries

We will now discuss the set up of Debit Notes, since the Credit Notes behave in the same way (in the case of Interest payable).

1. Assume you have raised an invoice to your debtor ‘M/s Blue Nile Stationeries for Rs.44,200 on 1^st Feb 2009 and have given a Credit Days of 20, so the invoice would fall due on 21^st Feb 2009. The Interest rate is set to 12% per 365-Day Year and is calculated Transaction-by-Transaction, as shown below:

[5-1A]

Let us see the accounting of interest amount for the above, if the same is treated as:

(a) Simple Interest

(b) Compound Interest

In case the interest amount is treated as Simple Interest

a)       Alter the Voucher Type Debit Note. Tab down to the field Class and type a class name, for example Interest-Simple

[5-1B]

b)       Set Yes to Use Class for Interest Accounting? and save the voucher type.

[5-1C]

c)       Create a ledger Interest Received under the group Indirect Incomes

d)       Debit Note Entry

Go to Accounting Voucher > Debit Note (Ctrl+F9) > Select the Class Interest-Simple

[5-1D]

e)       Say for instance, we are passing the entry on 28^th April 2009, so enter the same. Debit Blue Nile Stationeries > it will automatically display the List of Interest Bills under the Interest Details pop up screen, the interest amount due as on the debit note entry date > Select the particular interest reference > Credit Interest Received and save the voucher.

[5-1E]

f)         Outstanding Statement

     Go to the Outstanding Statement ie, Display > Statement of Accounts > Oustandings > Ledger > Blue Nile Stationeries >

      You will see interest amount also added in the outstanding statement in a separate line showing the date and reference no. of the Debit Note entry passed, which gives you the total outstanding amounting to Rs.2,20,506.30 (2,20,000 + 506.30) as on 28^th Feb 2009.

[5-1F]

g)       Interest Report

     View the Interest calculation report as on 1^st March 2009, ie, Go to Display > Statement of Accounts > Interest Calculations > Ledger > Blue Nile Stationeries > F2: Period = 1-4-2009 to 1-3-2010. Since the interest amount was charged to the party on 28^th Feb 2009, interest is calculated for 1 Day and will show Rs. 72.33 as interest receivable (ie, 220,000 * 12/100/365*1 = Rs. 72.33)

 [5-1G]

h)       Pass the receipt entry normally as usual ie, Cr. Dynamic Computers > select the relevant pending references/bills, Credit Cash/Bank Account.

In case of interest amount treated as Compound Interest:

a)        Alter the Voucher Type Debit Note. Tab down to the field Class, and type a class name, for example Interest-Compound

[5-1H] 

b)        Set the option Use Class for Interest Accounting? and Amounts to be treated as Compound Interest? to 'Yes' and save the voucher type.

[5-1I]

c)        Create a ledger Interest Received under the group Indirect Incomes

d)        Debit Note Entry

Go to Accounting Voucher > Debit Note (Ctrl+F9) > Select the Class Interest - Compound

[5-1J]

e)        Say for instance, we are passing the entry on 28^th April 2009, so enter the same. Debit Blue Nile Stationeries > it will automatically display List of Interest Bills under Interest Details pop up screen, the interest amount due as on the debit note entry date > Select the particular interest reference > Credit Interest Received and save the voucher.

[5-1K]

f)          Outstanding Statement

       Go to the Outstanding Statement ie, Display > Statement of Accounts > Oustandings > Ledger > Blue Nile Stationeries > You will see the interest amount also added to the principal amount of the bill in the outstanding statement. The Opening Amount of the bill is Rs.220000 and the Pending Amount as on 28^th Feb 2009 is Rs.220506.30 (220000 + 506.30).

[5-1L]

g)        Interest Report

       View the Interest calculation report as on 1^st March 2009, ie, Go to Display > Statement of Accounts > Interest Calculations > Ledger > Blue Nile Stationeries > F2: Period = 1-4-2009 to 1-3-2010. Since the interest amount was charged to the party on 28^th Feb 2009, interest is calculated for 1 Day. It will calculate the interest on the compound value ie, on Rs.220000 + 506.30 = 220506.30 and will show Rs.72.50 as the interest receivable (ie, 220506.30 * 12/100/365*1 = Rs.72.50)

[5-1M]

h)        Pass the receipt entry normally as usual ie, Cr. Blue Nile Stationeries > select the relevant pending references/bills, Credit Cash/Bank Account.

FAQ-2 : I would like the interest to be calculated in Tally at specified rates for a range of periods as follows:
0 to 30 days - No interest
31 to 45 days - @ 15%
46 to above - @ 20%

Please suggest how the same can be implemented in Tally.ERP 9

Answer

Follow the  steps  mentioned below to calculate the following:

1. Enable the bill-wise details in F11 feature F1 Accounting Features

[5-2A]

2. Specify the Interest parameters in the party ledger as shown below:

[5-2B]

3. Sales Entry: While passing the sales entry, say on 1^st of April 2009 for Rs.1,00,000/-, specify the period under Interest Parameters after the bill-wise details of a party are entered, as follows:

Bill-wise Details:

Credit Days – 30 days (wef 1.-4-2009)

Interest Parameters

Rate: 15 %, from Due Date of Invoice/Ref Date:  1-May-2009  To 16-May-2009 (period of 15 days, for 31 to 45 days)

Rate: 20 %, from Due Date of Invoice/Ref Date: 16-May-2009  To  (for 46 days onwards) 

[5-2C]

4. Accept the sale entry after specifying the interest details.

5. The Interest Calculation report will display the details as shown below:

Go to Gateway of Tally > Display > Statement of Account > Interest Calculation > Ledger > select the party

[5-2D]

FAQ-3 : Can I calculate the interest for each transaction separately?

Answer

Yes, you can calculate the interest for each transaction. Select the ledger for which the interest has to be calculated.

Use F11: Accounting Features to set Activate Interest Calculation and use advanced parameters to Yes.

[5-3A]

Under Advanced Interest Parameters, set the option Calculate Interest Transaction-by-Transaction to Yes.

Set the option Override Parameters for each Transaction to Yes. The interest sub-screen is displayed for every transaction even if the interest parameter is specified in the Master. You have the option to modify the value for that particular voucher or accept the default template that is displayed.

Set the option Override Advanced Parameters to No, inorder to modify the interest parameters set during voucher entry. 

[5-3B]

During voucher entry, the Interest Parameter sub screen is displayed after the bill-wise allocation sub screen.

[5-3C]

The transaction-by-transaction Interest Report is displayed as shown below:

[5-3D]

The same report with multiple interest rates in transactions is displayed as shown below:

[5-3E]

FAQ-4 : How to calculate interest on only credit or debit balance?

Answer

Tally.ERP 9 has the option of calculating the Interest on All Balances or only Credit/ Debit balances.

Consider the example of the company that receives an advance amount of Rs.25,000/- from Blue Nile Stationeries on January 26, 2009 towards an increased supply.  The company charges an interest on the outstanding bill, but wants to pay the interest at a lower rate (6%) for amounts received from customers as advance.

Select the option All Balances from the list of Interest Balances in the  Advance Interest Parameters screen as shown below:

[5-4A] 

The interest report, is displayed as shown below:

[5-4B] 

To calculate the Interest on Debit Balances only

Set the option Advanced Interest Parameters as shown below:

[5-4C] 

The interest Report is displayed as shown below:

[5-4D] 

Unlike the option All Balances report, the advance amount is not considered for the calculation of interest, in this report.

To calculate the Interest on Credit Balances only

Set the option Advanced Interest Parameters as shown below:

[5-4E] 

The interest report is displayed as shown below:

[5-4F] 

FAQ-5 : Can I calculate the interest from the Billing/Transaction Date?

Answer

Yes, you can. 

Consider the transaction of Manchester Computers.

[5-5A] 

The Outstanding Report mentioned above displays the bill voucher date as March 1 and the due date as March 25.

Set the interest parameter as shown below:

[5-5B]

The interest is calculated from the invoice date, i.e. March 1, till the report date.

To view the report:

Go to Gateway of Tally > Statements of Accounts > Interest Calculations  > Ledger > Manchester Computers

 [5-5C] 

FAQ-6 : How to calculate the interest from the Due Date of Invoice/Ref ?

Answer

Consider the transaction of Manchester Computers.

[5-6A] 

The Outstanding Report mentioned above displays the bill voucher date as March 1 and the due date as March 25.

Set the interest parameter as shown below:

[5-6B] 

The interest is calculated from the due date of the invoice, i.e. March 25, (not from the voucher date) till the report date.

To view the report

Go to Gateway of Tally > Statements of Accounts > Interest Calculations > Ledger > Manchester Computers

[5-6C] 

FAQ-7 : How to calculate the interest from the Effective Date of Transaction ?

Answer

In the following example, a sales bill was raised on March 2, 2006 with the effective date activated and entered as March 10, 2006.

The Voucher screen displayd is as shown below:

[5-7A] 

Note: The Effective date for a voucher can be enabled from the Voucher Type master.

The Outstanding Report is displayed as shown below:

 [5-7B] 

In the above report, the Transaction date is March 2, the Effective date is March 10 and the Due date of the Invoice is March 25.

Set the interest parameter as shown below:

 [5-7C] 

The Interest is calculated from March 10, which is the Effective date of the transaction.

To view the report:

Go to Gateway of Tally > Statements of Accounts > Interest Calculations > Ledger > Manchester Computers

[5-7D] 

FAQ-8 : How do I calculate the interest from the Due Date with a grace period ?

Answer

The invoice raised to Blue Nile Stationeries is as follows: Date of voucher 1^st Feb., 2009; Due date of the invoice Feb.28, 2009. The interest parameter is therefore set as shown below:

[5-8A] 

In the above interest parameter setting, though the Due date of the invoice is Feb.28, the applicability of interest calculated is set after 5 days, i.e.the interest is calculated from March 5, instead of Feb.28.

To view the report:

Go to Gateway of Tally > Statements of Accounts > Interest Calculations > Ledger > Blue Nile Stationeries

[5-8B] 

The Interest amount can be rounded off, by enabling the following:

 [5-8C] 

Note: The limit for the rounding value needs to be set by the user. For example, 1 will round off to Re.1, if limit is set to 10, the rounding off will be done for Rs.10.

In cases where the option Downward Rounding is selected, irrespective of the fraction value, the amount is rounded downwards. In the above example, the amount is rounded off to Rs.1084.

In cases where the option Normal Rounding is selected, the fraction value above 50 paise is rounded off to the next rupee and vice versa. The above example gives the value Rs.1085.

Similarly, when the option Upward Rounding is selected, irrespective of fraction value, the amount is rounded upwards. The above example gives the value Rs.1085

FAQ-9 : How do I calculate the interest with multiple rates on overdue bills ?

Answer

The interest parameter set for the invoice raised to Blue Nile Stationeries is as shown below:

[5-9A]  

In the interest parameter setting, mentioned above, 12% interest p.a. is charged from the Due date till Feb.28.

Thereafter, from March 1 till the date of the report, the interest charged is 14%.

To view the report:

Go to Gateway of Tally > Statements of Accounts > Interest Calculations > Ledger > Blue Nile Stationeries

[5-9B] 

FAQ-10 : How is the Penal Interest calculated on overdue bills ?

Answer

The interest parameter set for the invoice raised to Blue Nile Stationeries is as shown below:

[5-10A]   

In the interest parameter setting, mentioned above, 12% interest p.a. is charged from the Due date till Feb.28. If the bill is pending beyond this date, a penal interest is set to be charged from the date of invoice, i.e. Feb.1, without giving the user the benefit of a credit period (the user may configure the same as required).

To view the report:

Go to Gateway of Tally > Statements of Accounts > Interest Calculations > Ledger > Blue Nile Stationeries

[5-10B]