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Interest Calculation in Tally.

ERP 9

Tally.ERP 9 allows you to obtain reports on interest calculated by Tally.ERP 9 based on the instructions
you furnish. Interest figures are typically desired in the following situations:

1. On outstanding balance amounts

2. On outstanding bills/invoices/transactions (Receivable and payable)

Tally.ERP 9 gives you an tremendous capability to obtain interest implications on both.

Activate Interest Calculations


Interest is a legitimate return on money invested and chargeable in the business world on loans and also
on delayed payments. Interest can be calculated on the basis of Simple or Compound Interest.

The Activate Interest Calculation field is displayed in the Ledger Creation screen, only if Activate
Interest Calculations is set to Yes in F11: Features.

Set this field to Yes for each specific ledger account for which interest is to be calculated.

More:

Interest Calculation in Simple Mode

Interest Calculation in Advance Mode

Interest Calculation on Group

Interest Calculation on Ledger Balances

Statement of Interest Due on Invoices

Interest Calculation in Simple Mode


To calculate Interest in the Simple Mode:

1. Go to Gateway of Tally> F11: Features> Accounting Features > Set Activate Interest
Calculation to Yes. > Set Use Advanced Parameters to No.

2. In the Ledger Creation screen set Activate Interest Calculation to Yes.

3. The Interest Parameters sub screen is displayed. Enter the Rate and select the interest style from
the list.

Interest calculations on outstanding balances


Enter Interest details in Vouchers (only in case of transaction by transaction/Bill-by-bill) and view
Interest reports.

You will have to alter existing ledger accounts to permit interest calculations on them. The same
operation will apply when creating a new ledger account.

Interest calculation on outstanding balances is allowed for any ledger account. You simply specify the
interest rate and style of calculation. Nothing is required to be done for interest during voucher entry.

Let's take an example: Interest calculated on Outstanding Balances.

1. Go to Gateway of Tally> Accounts Info.> Ledgers> Alter (Single)> XY Bank (bank account)

2. Set Activate interest Calculation to Yes.

3. On activation, the Interest Parameters must be set. It is the basis on which interest will be
calculated for this Ledger account.

4. Rate: This is the rate at which the interest has to be calculated. In this case, specify 15%.

5. Interest Style: It is the basis on which the rate is applied. Of the four options, select 365-Day
Year.

6. Accept the screen.

You can now view the amount of interest that could be charged by the Bank.

Report on Interest Calculated on outstanding balances


The Interest Calculations Report can be displayed and printed.

Go to Gateway of Tally> Display> Statements of Accounts> Interest Calculations> Ledger> XY


Bank (Bank Account)
Interest calculation transaction by transaction
Activate and specify interest calculations in ledger masters.

Transaction by transaction or Bill-by-Bill interest calculation is permitted for 'Party' accounts like
accounts falling under the groups Sundry Debtors and Sundry Creditors. For example:

1. Alter a Customer account (under the group Sundry Debtors or one of its sub-groups).

2. Set Activate Interest Calculation to Yes. In the Interest Parameters now you have three lines to
answer.

3. Set Calculate Interest Transaction-by-transaction to Yes.

4. Set Over-ride Parameters for each transaction to No.

If set to No, you are not allowed to change interest parameters in voucher/invoice entry. If set to Yes,
you can change the interest parameters during entry.

Report on Interest Calculated on outstanding transactions/bills


To view the Interest calculated

Go to Gateway of Tally> Display> Statements of Accounts> Interest Calculations> Ledger> CP


Ltd

The report is similar to the Bill-wise Outstanding Statement. The last column gives the interest amount
on the transaction. Select the line to be viewed in detail for its calculations.

Interest Calculation in Advance Mode

The advanced parameters are particularly useful where interest rates change from time to time.

Go to Gateway of Tally> F11: Features > Accounting Features > Set Activate Interest
Calculation to Yes. > Set Use Advanced Parameters to Yes.

The Interest Parameters sub-screen is displayed

For Ledgers created under the Group Sundry Debtors/Sundry Creditors, the Interest Parameters sub-
screen is displayed as shown below:
Set Calculate Interest Transaction-by-Transaction to Yes, if you want to calculate interest for
each transaction.

Set Override Parameters for each Transaction to Yes, if you want to override the interest rates
and parameters set here during voucher entry.

Enter the interest rate in the Rate field.

Select the interest rate calculation period from the Interest Style list in the Per field.

Select the choice of balances for which the interest has to be calculated from the Interest Balances
list in the On field. The balances are All Balances, Credit Balances only and Debit balances only.
Interest can be calculated on all outstanding balances, whether debit or credit. You would like to
select only credit balances in case of accounts like Bank accounts, if you want to know the interest
that the bank might charge on overdrawn balances.

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.

For Ledgers created under the Group Bank Accounts, or if the option Calculate Interest Transaction
by Transaction is set to No, then the Interest Parameters sub-screen is displayed as shown below.
Enter the interest rate in the Rate field.

Select the interest rate calculation period from the Interest Style list in the Per field.

Select the choice of balances for which the interest has to be calculated from the Interest Balances
list in the On field. The balances are All Balances, Credit Balances only and Debit balances only.
Interest can be calculated on all outstanding balances, whether debit or credit. You would like to
select only credit balances in case of accounts like Bank accounts, if you want to know the interest
that the bank might charge on overdrawn balances.

Specify the interest rate applicable period from the Applicable From: and To: fields.

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.

Display Report Interest on Outstanding Balances


To view the report on Outstanding balances:

Go to Gateway of Tally> Display> Statements of Accounts.> Interest Calculations> Ledgers> XY


Bank

Advanced Parameters - Interest calculation transaction by


transaction
Activate and specify interest calculations in ledger masters.

The following extra options now become available:

You can now have Multiple Rates of Interest.

You can Override Advanced Parameters during voucher entry. Hence, each entry could have
different parameters.

Choice of Balances All Balances, Credit Balances only, Debit Balances only.

Applicability - This actually applies to the viewing of the statement and not the levy of interest.

Calculate from - You can decide whether interest is to be levied from the Due Date or from the
Effective Date of the transaction (or the voucher date if effective date is not activated) or even
Date ranges specified during Voucher Entry.

Choice of methods for Rounding off of interest amounts.

Note: To obtain the option Calculate from Date Specified during Entry, you must have Override
advanced parameters set to Yes. The option is required if you want to specify interest to be calculated at
different rates for different periods. If you choose to override parameters then information would be
asked during voucher/invoice entry. The interest information is required after the bill-wise details have
been entered.

Report on Interest Calculated on outstanding transactions/bills


Go to Gateway of Tally> Display> Statements of Accounts> Interest Calculations> Ledger> CP
Ltd

Press the button F1: Detailed on the Button bar to see the calculation and the period. Previous
transactions are calculated from Effective date of Transaction as default. Date Specified during Entry
has not been used.

Note: Part monies received have been accounted for and interest calculated on the balance.
A look at Calculate From Dates Specified during Voucher Entry

You have set up the Interest Parameters for CP Ltd to calculate on Dates specified during Voucher
Entry.

We will take one invoice and put in the interest information.

To view the interest amount:

Go to Gateway of Tally> Display> Statements of Accounts> Interest Calculations> Ledger> CP


Ltd
Book Entries and adjustment of interest

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.

How to enter the calculated interest amounts?

Use Debit Notes and Credit Notes with Voucher Classes

Use Debit notes for Interest receivable and Credit Notes for Interest Payable. Interest is calculated
on Simple or Compound basis and separate classes should be used for them.

Set-up Debit/Credit Note Classes for interest entries

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.

Tab down to the field Class.

Type the name of the Class.

Type Interest - Simple

Likewise, create a Class Compound Interest and set Yes to Amounts to be treated as Compound
Interest.

Accept the Voucher Type and return to the Gateway of Tally. Create a ledger account Interest Received
under Group Indirect Income.
Voucher Entry for booking Interest

1. Go to Gateway of Tally> Accounting Voucher

2. Select Ctrl+F9: Debit Note

3. 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

Bill-wise interest entry

Debit CP Ltd

Credit Interest Received

When you debit the party account, a list of bills for which interest is 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 for 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.

Now display Outstandings for CP Ltd

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.
Entries for Interest on Balances only

Again, the issues are Simple and Compound Interest

Compound Interest

Make the following entries in a Debit note with Compound Interest Voucher Class

Debit Bank Ltd (the amount is automatically filled up with the calculated interest)

Credit Interest Received

And nothing needs to be done! The Bank Account has been increased by the amount of interest due and
the Income account of Interest Received also credited.

Simple Interest

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 something like this:

Debit Interest Receivable (a current asset account)

Credit Bank Ltd

Use a normal Journal voucher for this entry.

We have to necessary go this route to take advantage of the auto filling of the interest amount which can
appear only when we use the Bank Ltd account in Debit Note in the first place.

Interest Calculation Reports

Interest Calculation reports are automatically produced if the feature is activated In F11: F1:
Accounting Features and the parameters are set for individual ledger accounts.

There are two types of reports, one pertaining to interest on balances of accounts like loans, and the
other interest on overdue invoices.

Interest reports are available for individual ledger accounts as well as for Groups
More:

Interest Calculation on Group

Interest Calculation on Ledger Balances

Statement of Interest Due on Invoices

Interest Calculation on Group

The Group Interest Calculation statement is a list of all accounts and sub-groups belonging to the
selected group that displays the current balance in each account or sub-group and the total interest.

Go to Gateway of Tally> Display > Statements of Accounts > Interest Calculations > Group

Select a Group, E.g. Loans (Liability)


The Cr in the interest amount should not be confused to mean an Income. It only means that it is
payable and is a liability.

To ease interest recording, Tally.ERP 9 has an interest template, a special voucher class in Debit Note
and Credit Notes.

Drill down to the Ledger level Interest report.

Interest Calculation on Ledger Balances

You can get a report on the Ledger balances for the interest calculated.

Go to Gateway of Tally> Display> Statements of Accounts> Interest Calculations> Ledger

Select Account E.g. Bank Loan Account.

Interest is re-calculated with every change in balance outstanding. The Cr in the interest amount should
not be confused to resemble an Income. It only means that it is payable and is a Liability.

To ease interest recording, Tally.ERP 9 has an interest template, a special voucher class in Debit Note
and Credit Notes.

The interest screen will appear similar to the one below:

Interest calculation on Bank Loan account

Statement of Interest Due on Invoices


You can calculate interest on each invoice for the period it is outstanding, wholly or partly. Transaction
by transaction or bill-by-bill interest calculation is permitted for 'Party' accounts like accounts falling
under the groups Sundry Debtors and Sundry Creditors. Bill-wise details should be active for the
company and the party.

The report is similar to the Bill-wise Outstandings Statement. The last column gives the interest amount
on the transaction. Press F1: Detailed to see the calculation.

Go to Gateway of Tally > Display > Statements of Accounts > Interest Calculations > Ledger

Select the ledger Account XYZ Agency

Interest is re-calculated with every change in balance outstanding. The Cr in the interest amount should
not be confused to mean an Income. It only means that it is payable and is a liability. The figure is
illustrative only and you will need to account for the interest expense and liability through a journal
entry.

To ease interest recording, Tally.ERP 9 has an interest template, a special voucher class in Debit Note
and Credit Notes.

Interest Calculation based on Bank


Date/Voucher Date

The interest calculation feature is enhanced with the facility to calculate interest on ledger balance as per
Bank balance provided in Bank Reconciliation Statement using simple and advanced parameters based
on bank/reconciliation date. However, to allow users to predefine auto-calculation of interest based on
voucher date, the Date Type - Voucher Date is also made available along with Bank/Reconciliation Date
in the bank ledger master.

Note: In all releases of Tally.ERP 9, the interest was being calculated, by default, on Voucher Date. In
Tally.ERP 9 release 4.8, the option to calculate interest on Bank/Reconciliation Date has been provided.
Hence, only the newly provided feature will be explained here.

To capture the transaction details of reconciled vouchers and provide flexibility to drill-down to the last
level of voucher entry, a new report - Bank Reconciled Transactions has been introduced.

The option to calculate interest based on either Bank reconciliation date or voucher date will be
displayed for ledgers grouped under Bank Accounts, Bank OCC A/c and Bank OD A/c. The interest
calculated on:

Voucher date will be displayed in the Ledger Interest report

Reconciliation date will be displayed in Bank Reconciled Transactions report.

Bank Master - Interest Calculation on Bank/Reconciliation Date


using Simple Parameters
Go to Gateway of Tally > Accounts Info. > Ledger > Create

Ensure the option - use advanced parameters below Activate Interest Calculation of
F11: Features > F1: Accounts is set to No.

Create the ledger Canara Bank A/c by grouping it under Bank Accounts and set the
option - Activate Interest Calculation to Yes.

In the Interest Parameters screen, select the Bank/Reco Date as the Date Type in the Calculate Interest
Based on field. Provide the other parameters as shown and accept the Interest Parameters and the bank
Ledger Creation screen:
Bank Master - Interest Calculation on Bank/Reconciliation Date
using Advanced Parameters
In the Ledger Creation screen, click F11: Features > F1: Accounts set the option - use advanced
parameters below Activate Interest Calculation to Yes.

In the Ledger Alteration screen of Canara Bank A/c ledger, set the option - Activate Interest Calculation
to Yes and press Enter key. In the Interest Parameters screen, select the Bank/Reco Date as the Date
Type in the Calculate Interest Based on field. Provide the other parameters as shown and accept the
Interest Parameters and the bank Ledger Creation screen:

Voucher Entry
Let us record payment voucher on 1-5-2013. Go to Gateway of Tally > Accounting Vouchers > F5:
Payment

Recording Payment Voucher in Single Entry Mode

Click F12: Configure and set the option - Use Single Entry mode for Pymt/Rcpt/Contra to Yes and
accept the Voucher Configuration screen. Record the payment voucher and provide the bank details.
Note: To provide bank details with remarks, click F12: Configure in the Payment voucher and set the
options as shown:

The Payment voucher appears as shown:


Recording payment Voucher in Double Entry Mode

In the Accounting Voucher Creation screen, click F12: Configure and set the option - Use Single Entry
mode for Pymt/Rcpt/Contra to No and accept the Voucher Configuration screen. Record the payment
voucher and provide bank details.

The Payment voucher appears as shown:


Note: To display Dr/Cr instead of To/By in the voucher, click F12: Configure and set the option - Use
Cr/Dr instead of To/By during entry to Yes.

Interest Calculation Report


Since the bank ledger is configured to calculate interest based on reconciliation date, interest will be
calculated only if the transactions are reconciled.

To view the Interest Calculation report, go to Gateway of Tally > Display > Statement of Accounts >
Interest Calculation > Ledger > Canara Bank A/C

Scenario 1: Reconciling the Payment Vouchers and Viewing Interest Calculated on Simple Parameters

To reconcile the payment voucher, go to Gateway of Tally > Banking > Bank Reconciliation > Canara
Bank A/c

For the payment vouchers recorded in the previous section, enter the reconciliation dates as shown and
accept the Bank Reconciliation screen:

To view the Interest Calculation report after reconciling the payment vouchers, go to Gateway of Tally >
Display > Statement of Accounts > Interest Calculation > Ledger > Canara Bank A/C

Click F2: Period and enter the From and To dates as 1-5-2013 and 31-5-2013 respectively. The Interest
Ledger report appears as shown:
Depending on the dates entered for reconciliation, the interest gets calculated and displayed here.

Scenario 2: Reconciling the Payment Vouchers and Viewing Interest Calculated on Advanced
Parameters

In the Interest Calculation report, click F2: Period and enter the From and To dates as 1-5-2013 and 30-
6-2013 respectively to view the interest for the period of June as defined in the advanced interest
parameters. The Interest Ledger report appears as shown:
Depending on the dates entered for reconciliation, the interest gets calculated and displayed here.

Bank Reconciled Transactions


To view the Bank Reconciled Transactions report, press Enter on any one of the balances displayed in
the Ledger Interest report.

(Go to Gateway of Tally > Display > Statement of Accounts > Interest Calculation > Ledger > Canara
Bank A/C > Press Enter on any one of the balances)

Click F2: Period and change the From and To dates as 1-5-2013 to 30-6-2013 respectively. Click F12:
Configure and set the options as shown to choose the required sorting option and capture the narration,
remarks and favouring name in the Bank Reconciled Transactions report as shown below:
The Bank Reconciled Transactions report provides columnar details on reconciled transactions. The
description of each column is given below:

Bank Date: The Bank Date provided in the Bank Reconciliation screen is captured here.

Vch Date: The date on which the transaction is recorded is captured here.

Particulars: The remarks and narration entered in the payment/receipt voucher are captured under the
name of the ledger:

Debited while recording a payment transaction.

Credited while recording a receipt voucher.

Favouring Name/Received From: The details entered in the Favouring Name/Received From field in the
Bank Allocation screen of payment/receipt voucher is captured here.

Note: To provide details in these field, ensure the relevant information is provided in the Bank Details
(displayed on setting the option - Provide Bank Details to Yes) in the party ledger master.

Vch Type: The voucher type used to record transaction is captured here.

Transaction Type: The transaction type selected in the Bank Allocations screen of the payment or
receipt voucher is captured here.

Instrument No.: The instrument number entered in the payment or receipt voucher is captured here.

Instrument Date: The instrument date entered in the payment or receipt voucher is captured here.
Debit: The amount debited to the bank ledger in the voucher is captured here.

Credit: The amount credited to the bank ledger in the voucher is captured here.