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Ch-2 Account Current

Theory

Account Current
It is a statement rendered by one party to another. Transactions between two parties during a particular
period are recorded. It is, in fact, a copy of ledger account of the other party in the books of the party rendering
the statement. Usually, interest is calculated on each transaction at a fixed rate and taken into consideration. The
name of the party to whom the account current is sent, is stated at the end. For instance, when 'X' renders the
account current to 'Y', the heading 'Y' in account current with 'X'.
It is prepared in the form of ledger account with additional device, for calculation of interest of in the
form of statement with Debit (Dr.); Credit (Cr.) and balance columns as are usually followed by the bank. It is
usually rendered by
(a) One dealer to another,
(b) By a banker to his client,
(c) By an agent to his principal etc.

Methods of Computation of Interest

(a) Ordinary Method

Each item is taken separately and the number of days from the date of such item to the end of the period is
calculated and interest worked out at the agreed rate of interest for the requisite number of days. In case of
opening balance, the starting date is included in the total number of days, whereas no interest is calculated on
closing balance. Interest is calculated at each stage SEPERATELY.

(b) Product Method

In practice, the product of the amount and the periods (in months or days as the case may be) from the
effective date up to the date of rendering the account are found out.
INSTEAD OF CALCULATING SEPERATELY, each item is multiplied by the number of days to the
end of period and INTT.IS CALCULATED ON THE NET PRODUCT FOR ONE DAY. In case of opening
balance, the number of days includes the opening date but no interest is computed on closing balance. The interest
is ascertained by the formula.
Balance of Pr oducts Rate of Interest
Interest =
365 days 100

(c) poque Method

The number of days from the date of beginning of cash payment is ascertained. The same is multiplied by
the amount paid/received, and the products are calculated. The product on each side are then totalled and the
difference is ascertained. Interest is calculated at the agreed rate for the said difference for one day and the same is
posted on the side which is deficit.

SHORT NOTES

Questions 1. RED INK INTEREST

Answer Interest is calculated, in an account current, on the amount of a transaction from the due date of the
transaction to the closing date of the period. In case of bills and future dated invoices the due dates may fall either
within the accounting period or outside the accounting period. In case of the former, ordinary procedure is
followed; but in the latter case interest from the closing date to such due date is customarily written in redink
interest is that, if it appears on the credit side, it will be taken as if it appears on the debit side and viceversa.
Thus redink interest may be written in ordinary ink on the opposite of the account. The epoque method red
ink interest adjustment is not necessary.
Very Important
Where the rate of interest differs in respect of debits and credits, interest should be computed for debits
and credits separately instead of on the balance of the product. This should be remembered irrespective of any
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method
.
PRACTICAL QUESTIONS
Questions 1. From the following information, prepare account current on 30th September 1997 to be submitted by
M to F. 1997 Rs.
July 1 Debit balance b/f 13,500
5 Sold goods to F 9,000
15 Received cash from F 13,500
August 4 Sold goods to F 19,200
16 Received cash from F 9,000
September 1 Bought goods from F 21,000
2 Paid cash to F 7,500
12 Sold goods to F 9,600
15 Paid cash to F 6,000
Interest is to be taken into account @ 10% per annum; it may be calculated to the nearest rupee.
[Ans. Sept. 30 to Interest 422]

Questions 2. Mr. Mehra owed Rs. 30,000 on 1st January, 1996 to Mr. Somesh. The following are the transactions
that took place between them during 1996. It is agreed between the parties that interest @ 15% p.a. is to be
calculated on all transactions.
1996
January 16 Mr. Somesh sold goods to Mr. Mehra 20,000
January 29 Mr. Somesh bought goods from Mr. Mehra 15,000
Feb. 10 Mr. Somesh paid cash 15,000
March 13 Mr. Mehra accepted a bill drawn by Mr. Somesh for one months 20,000
They desire to settle their accounts by one single payment on 15th March 1996 Ascertain the amount to be paid to
the nearest rupee. Ignore days of grace. [Ans. To interest 1,570]

Question 3.
From the following particulars prepare the account current to be rendered by Mr. Singh to Mr. Paul as on 31st
August, 2001. Interest must be calculated @ 10% p.a.
2001 Rs. 2001 Rs.
June 11 Goods sent to Paul 1,020 July 7 Goods sent to
" 15 Cash received from Mr. Paul 700
Paul 500 Aug 8 Cash received from Paul 1,100
" 20 Goods sent to
Mr. Paul 650

Question 4. [Main Point= Opening balance b/d]

From the following particulars make up an. Account Current to be rendered by S. Dasgupta to A. Halder
at 31st Dec. reckoning interest at 5% p.a. ..
2001 Rs.
June 30 Balance owing by A. Halder 520
July 17 Goods sold to A. Halder 40
Aug. 1 Cash received from A. Halder 500
Aug. 19 Goods sold to A Halder 720
Aug. 30 Goods sold tq A. Halder 50
Sept. 1 Cash received from A Halder 400
Sept. 1 A Halder accepted Dasgupta's Bill at 3 month date for 300
Oct. 22 Goods bought from A. Halder 20
Nov.12 Goods sold to A. Halder 14
Dec. 14 Cash received from A. Halder 50
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Question 5.
Following transaction took place between X and Y during the month of April, 2001.
Rs.
April 1 Amount payable by X to Y 10,000
7 Received acceptance of X to Y for 2 months 5,000
" 10 Bills receivable (accepted by Y) on 7.2.2001
is honoured on this due date 10,000
" 10 X sold goods to Y(invoice dated 10.5.2001) 15,000
" 12 X received cheque form Y dated 15.5.2001 7,500
" 15 Y sold goods to X( invoice dated 15.5 .2001 ) 6,000
" 20 X returned goods sold by Yon 15.4.2001 1,000
" 20 Bill accepted by Y is dishonoured on this due date 5,000
You are required to make out an account current by products method to be rendered by X to Y as on 30.4.2001,
taking interest into account @ 10% p.a.

Question 6.
On 2nd January 2008 Vinod opened a current account with the Allahabad Bank Limited; and deposited a sum of
Rs. 30,000. He further deposited the following amounts:
15th January Rs. 12.000
12th March Rs. 8.000
10th May Rs. 16.000
His withdrawals were as follows
15th February Rs. 26,000
10th April Rs. 30,000
15th June Rs. 14.000
Show Vinod's A/c in the ledger of the Allahabad Bank. Interest is to be calculated at 5% on the debit balance and
2% on credit balance. The account is to be prepared as on 30th June. 2008. Calculation may be made correct to
the nearest rupee.

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Special Points to be kept in mind for Numerical:

Doubt: Period kaha se kaha tak count kartey hai ?
Ans: Transaction / Due date se Upto Account Current date tak count kiya jata h.

Doubt: Cheque & Invoice k case me Date ?

Ans: Keep in mind

In such cases Due date wo mani jati hai jo Cheque and Invoice pe dali hoti hai.

Agar cheque future ki date ka hota hai [ie POST DATED cheque ] To wo date due date hoti hai jo us pe
dali hoti hai.

Doubt: What about opening balance day?

Ans: Opening B/d day & closing C/d day is counted as one day. Because only Starting day is left
not the day which is in the way.

Doubt: Red Ink Interest ?

Ans: Negative intt instead of writing with (-) sign, In old days such was written by Red Ink.
Thats why called Red Ink Intt.

Doubt: Is answer different from each method of Account Current?

Ans: SAM.E answer is comes from each.

Doubt: If nothing given then by which method solution is to be made?

Ans: By any of Ist two, By simple or By product method.

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PAST Recent Exam Questions:

2014 Nov [ Marks 4 ]

Q. From the following particulars prepare a current account, as sent by Mr. Ram to Mr. Siva as on
31st October 2014 by means of product method charging interest @ 5% p.a.

Dates 2014 Particulars Amounts Rs.

1st July Balance due from Siva 750
15th Aug Goods sold to Siva 1,250
20th Aug Goods returned by Siva 200
22nd Sept Siva paid by cheque 800
15th Oct Received cash from Siva 500

2013 Nov [ Marks 4 ]

Q. Roshan has a current account with partnership firm it has debit balance of Rs.75,000 as on l-07-2012.
He has further deposited the following amounts:
Date Amounts [ Rs. ]
14-07-2012 1,38,000
18-08-2012 22,000
He withdrew the following amounts:
Date Amounts [ Rs. ]
29-07-2012 97,000
09-09-2012 11,000
Show Roshan Account in the ledger of the firm. Interest is to be calculated at 10% on the debit balance and 8% on
credit balance. You are require to prepare current account as on 30 Sept. 2012.

2012 Nov
Q. Following transactions took place between L and M during the month of April 2012:

Dates Particulars Amounts

1-04-12 Amount Payable by L to M 10,000
7-04-12 Received acceptance of M for 2 Months 5,000
10-04-12 Bills receivable (accepted by M) on 7.2.2012 is honoured on this due date 10,000
10-04-12 L sold goods to M (due dates 10.05.12) 15,000
12-04-12 L received cheque from M (due date 15.5.2012) 7,500
15-04-12 M sold goods to L (due date 15.5.2012) 6,000
20-04-12 L returned goods sold by M on 15.04.2012 1,000
20-04-12 Bills accepted by M is dishonoured on this due date 5,000

Prepare the Ms Account in the books of L for the month of April 2012, taking interest into account @ 18% p.a. .

Ans: Interest = [417500 x 18% x1/365]= Rs. 205.90

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