DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : B. VIJAYA KUMAR
Designation : Lecturer
Branch : Commercial & Computer
Practice (CCP)
Institute : GPW/Guntur
Year/Sem : III Sem (C-05)
Subject : ACCOUNTANCY-II
Sub-Code : CCP-302
Topic : ACCOUNT CURRENT
Duration : 50 minutes
Sub Topic :RED INK INTEREST
Teaching Aids : PPT ANIMATION

CCP302.20
1
 Objective
Account Current
At the end of this class, you will be
able to know

RED INK INTEREST

CCP302.20 2
Recap:
Red Ink Interest
 Sometimes, DUE DATE falls after CLOSING
PERIOD of Account Current

 In such cases, NO INTEREST is allowed

CCP302.20 3
Recap contd.

Red Ink Interest

 Instead, INTEREST should be deducted for NO. of

DAYS by which DUE DATE falls after CLOSING

DATE of Account Current.

CCP302.20 4
Recap contd.

METHODS OF CALCULATING INTEREST

INTEREST PRODUCT INTEREST PERIODICAL EPOQUE

TABLES METHOD NUMBERS BALANCE METHOD
METHOD METHOD METHOD

CCP302.20 5
Recap contd.

Red Ink Interest

 Eg1: Date of rendering Account Current – June 30

X gave 2 months’ acceptance to Y for Rs.500 – June 15
DUE DATE of the Bill – August 18 (including 3 days of
Grace)
Therefore, INTEREST on Rs.500 for 49 days
(July 31 days + August 18 days) should be deducted
From Account Current (Debit/Credit side on which Bill
is entered)
CCP302.20 6
Recap contd.
Red Ink Interest

 E.g. 1 (continued):

Product of this item (Rs.500 x 49) shown as a MINUS

Product and deducted from TOTALS of PRODUCTS

on DEBIT/CREDIT side of Account Current where

Bills are recorded

CCP302.20 7
Recap:
Red Ink Interest
 Instead, INTEREST should be deducted for NO. of

DAYS by which DUE DATE falls after CLOSING

DATE of Account Current

CCP302.20 8
 Recap:

Red Ink Interest

 In actual practice, PRODUCT of such ITEM (whose

Date falls after the closing date of Account Current) is
Written in RED INK, it is called RED INK INTEREST

CCP302.20 9
Red Ink Interest
Eg 1: M had the following transactions with N. Prepare an Account
Current as on 31st March, 2008. Calculate interest at 5% p.a.
2008 Rs.
Jan 1 Balance due from N .. 1,500
10 Sold goods to N .. 1,200
Feb 1 B/R received from N (1 month due) .. 1,500
2 Sold goods to N (due on Feb 15) .. 1,800
8 Goods returned by N, sold to him on Feb 2 .. 200
28 Sold goods to N (payment due on Apr 15) .. 1,000
Mar 4 B/R received from N due on this date
is dishonoured. Noting charges paid Rs.20
15 Received cash from N .. 400
20 Received B/R from N due 1 month after .. 500
31 Sold goods to N (due on May 15) .. 1,000

CCP302.20 10
 N in Account Current with M as on 31st March 2007
Dr.
Cr.
Date Particulars Amount Days Products Date Particulars Amount Days Products
2007 Rs. Rs. 2007 Rs. Rs.
1,500.0 136500.0 By B/R (due on 1,500.0
Jan-01To balance b/d 0 91 0 Feb-01 Mar 4) 0 27 40500.00
1,200.0 By Sales Returns
Jan-10To Sales a/c 0 81 97200.00 Feb-08 (Feb 15) 200.00 45 9000.00
To Sales (due on 1,800.0
Feb-02 Feb 15) 0 45 81000.00 Mar-15By Bank a/c 400.00 16 6400.00
To Sales (due on 1,000.0 By B/R (due on
Feb-28 Apr 15) 0 -15 15000.00 Mar-20 Apr 23) 500.00 -23 11500.00
To B/R 1,500.0
Mar-04 dishonoured 0 27 40500.00
Mar-04Bank Noting 20.00 27 540.00
To Sales (due May 1,000.0
Mar-31 15) 0 -45 45000.00

To Interest on 251340.0
Mar-31 Products bal 34.43 Mar-31By balance 5454.43 0
295740.0 295740.0
8054.43 0 8054.43 0
Apr-01To balance b/d 5454.43

Calculation of Interest: 251340 x 5 / 365 x 100 = 34.43

CCP302.20 11
Summary
 Red Ink Interest arises when the due date of a
Transaction falls after the closing date of preparation
Of Account Current

 Interest should be Deducted for the excess number of

days beyond Account Current’s Closing date

CCP302.20 12
Summary contd.
 Since the amount of Interest is written with RED INK,
it is called “RED INK INTEREST”

 Purpose of recording Interest with RED INK is to

ALERT the Accountant to deduct the Product Amount
from Account Current

CCP302.20 13
Quiz
1) When transaction date falls beyond Account current
date, no. of days after Account Current date are:

a) indicated in DAYS column with MINUS symbol

b) indicated in DAYS column with PLUS symbol
c) Both (a) and (b).
d) None of the above.

CCP302.20 14
Quiz

2) Purpose of recording Interest with “Red Ink” is :

a) to alert Accountant to make deduction.

b) because “Red Ink” is cheaper.
c) to make it attractive.
d) None of the above.

CCP302.20 15
Frequently Asked Questions
1. Briefly explain how RED INK INTEREST acquired
that name and why.

CCP302.20 16
Assignment
Eg 1: Leela had the following transactions with Radha:
2005 Rs.
Jan 1 Balance due from Radha .. 1,800
Feb 16 Purchased goods from Radha .. 9,000
Feb 28 Sold goods to Radha .. 19,000
Mar 16 Received a cheque .. 5,000
Apr 20 Sold him goods (Invoice on May 3) .. 12,000
Jun 16 Purchased goods from Radha
(received on July 16) .. 15,900
Sep 23 Paid Radha cash .. 3,800
Oct 24 Accepted radha’s bill for 3 months .. 5,700
Nov 26 Received Radha’s acceptance for
2 months .. 8,900
Interest 7%. Prepare A/c Current up to Dec 31, 2005.
CCP302.20 17
Assignment
2) For more information on this topic, please refer to:
a) “Introduction to Accountancy” by T.S. Grewal
b) “Advanced Accountancy” by Jain & Narang
c) “Introduction to Accountancy” by S.N. Maheswari
d) “Advanced Accountancy” by Shukla & Grewal
e) “Advanced Accountancy” by Gupta & Radhaswamy
f) “Principles & Practice of Book-Keeping” by
Ch. Shanmukhaswamy
g) Any other text book suggested by your teacher
h) Previous years’ exam question papers of SBTET
CCP302.20 18