Ledger Account Interest Computation in Tally
The borrower pays extra money as Interest to Lender. Debtor also pays extra money as Interest for delayed period of payment of outstanding Bills.
Tally provides various features of Compute Interest on Borrowings and delayed payment of outstanding bills by Debtor to Creditor
Ledger Account Interest Computation in tally
To compute Interest, first you must activate the features of Interest in Tally. Only then, the options related to Interest would be available in the system
Interest is paid / received for :
- Monies Lent / Borrowed : Interest is Paid / Payable by Borrower of money to the Lender, computed as per Interest parameters specified for the Ledger Account
- Overdue Interest on Delayed Payments: Interest is Paid / Payable by Debtor to Creditor for delayed payment of due bills, as per Interest parameters specified for each transaction.
In this post, we discuss about Ledger Account Interest. This is applied for money bowed / lent, and is computed on running ledger balance of the borrower, in the books of lender.
Activation of Interest Features for the Company in Tally
At F11: Feature > Accounting Features, under section Outstandings Management, at Activate Interest Calculation, set Yes to activate Interest computation features.
Activation of Interest
Consequently, Interest reports can be obtained on the basis of Interest parameters specified in Ledger Account Master / Voucher.
Having Set at the above options (i.e setting Yes at Activate Interest Calculation), further, at Use Advanced Parameters, set No to specify a single rate of Interest for the transaction (e.g 1.25% per month). Set Yes to specify staggering period multiple interest rate (e.g @12% for April to June, @15% per year for July to September & 18% per year thereafter, etc).
Single Rate Ledger Interest (Account Current)
Often, Interest is charged at fixed rate, to specific borrower. In such case, Interest would be applicable to same on all borrowings. So, Interests rate may be specified in the ledger account of borrower.
Activation of Single Rate Interest for Ledger Account in Tally
At Ledger Accounts entry/ alter screen (GoT>Accounts Info>Ledger), set Yes at Activate Interest Computation to get Ledger Interest Rate entry screen.
Interest option set up at Ledger Accounts
Ledger Interest parameters set up for Account Current in Tally
At Ledger Interest parameters entry screen, at Calculate Interest Transaction by Transaction, Set No to compute Interest on running Ledger Balances (Account Current).
Simple Interest Method
Now specify the Interest Rate applicable for the Ledger Account
- Interest Rates: At Rate, enter the Rate for Ledger in % (e.g 12)
- Interest Rate Period : At Per , select the Period from Interest Style list (F-2B) for which the Interest Rate (entered in the preceding field) would be applicable, from the following available Rate periods :
- Monthly Interest Rates : Monthly Interest Rate may be specified by selecting:
- 30 day Month : Select 30 Day Month it to compute the Interest on 30 day month basis (so the Interest for Feb and Interest for March would be same for the same number of days),
- Calendar Month : Select Calendar Month to compute the Interest on number of days in the calendar (so the Interest For Feb and Interest for March would be different for the same number of days),
- Yearly Interest Rates : Yearly Interest Rate may be specified by selecting :
- 365 day Year : Select 365 day Year to compute the Interest on 365 day year (so the Interest for the year 2012 (366 days leap year) and Interest for the year 2013 (365 days year) would be same for the same number of days),
- Calendar Year : Select Calendar Year to compute the Interest on the basis of number of days in the Year (365/ 366) (so the Interest for the year 2016 (366 days leap year) and Interest for the year 2015 (365 days year) would be different for the same number of days),
- Monthly Interest Rates : Monthly Interest Rate may be specified by selecting:
In simple Ledger Interest method, you can apply a single rate for the Ledger Account in the Account Ledger (you may set different Rates for each Ledger Account).
Single Rate Interest Computation on running ledger balance in Tally
Single rate of Interest is uniformly applied for the Ledger Account Master, on running balance of ledger account. This is explained by following example.
A loan of Rs 25000 was paid on 1.5.2009 to A K Das.
Interest Calculated on various methods are shown in the table below.
Number of Days upto 31.8.09 – 1.5.09 to 31.8.09 – 122 Days (31+30+31+30). The date of payment is excluded in computation of chargeable days.
| Interest Parameter | Computation | Interest Amount |
| 12% per annum (Calendar Year) | 25000x12x122/365 | 1002.74 |
| 1% per 30 day month | 25000x122x1/30 | 1016.67 |
| 1% per Calendar Month | 25000×1/100 (May = 250) + 25000×1/100 (June = 250) + 25000×1/100 (July = 250) +25000×1/100x(30/31) (Aug=241.94) | 991.94 |
A loan of Rs 25000 was paid on 1.5.2009 to A K Das. He repaid Rs 10000 on 3.7.09. We will now see computation of Interest under different methods
Interest Calculated @ 12% pa (calendar year) upto 31.8.09
Calendar Year Rate Interest report in Tally
The amount is computed as :
- 1-5-09 to 3-7-09 = 63 days (31+30+2). Interest = 25000x12x63/(365×100)=517.81
- 3-7-09 to 3-7-09 = 59 days (29+30). Interest = 25000x12x59/(365×100)=290.96
Interest Calculated @ 1% (30 day month) upto 31.8.09
Month Rate Ledger Interest report in Tally
The amount is computed as :
- 1-5-09 to 3-7-09 = 63 days (31+30+2). Interest = 25000x{(1/30)/100}x63=525.00
- 3-7-09 to 3-7-09 = 59 days (29+30). Interest = 15000x{(1/30/)/100}x59=295.00
Interest Calculated @ 1% (calendar month) upto 31.8.09
Calendar Month Ledger Interest report in Tally
The amount is computed as:
- 1-5-09 to 3-7-09 = 63 days (31+30+2). Interest = May (25000x 1/100) = 250 +June (25000x 1/100) = 250+ July (25000x 1/100 x 2/31) = 16.13= 516.13
- 3-7-09 to 31-8-09 = 59 (29+30) days. Interest = July (15000x{(29/31/)/100}= 140.32 + Aug 15000x(30/31)= 145.16 = 285.48
Multi Rate Ledger Interest on Ledger balance in Tally
Sometimes, different Interest rate is applied for a Ledger Account, for different periods. In such case, advanced Interest parameters are set for each period.
In Advanced Interest Method, you specify multiple Interest Rates (called Staggering Rates) for different block of period (e.g 12% pa for Apl – June and then 15% for July onwards etc). You may further specify to round off the Interest amount (e.g to nearest rupee, nearest 10 rupee etc)
Multi Rate Ledger Interest activation in Tally
To set Advanced (multi rate) Interest Computation method, at F11:Features>Accounting Features, having set Yes at Activate Interest Calculation (F- 1A), further set Yes at Use Advanced parameters, to get Advanced (multi period-multi rate) Ledger Interest parameters entry screen (F- 4A)
At Calculate Interest Transaction by Transaction, set No
Advanced single rate ledger Interest parameter set up in Tally
Multi Rate Ledger Interest Parameters set up in Tally
Now set the Multi Rate Interest Parameters as follows :
- Interest Rates: At Rate, enter the Rate and select the Rate Period (at Per) in the same way as described earlier for Single Rate Interest rate.
- Balance Type : At the field On, Select the Balance Type as follows :
- All Balances: Select it to take both Debit & Credit Balances into account for computation of Interest Consequently :
- Credit Balances Only:: Select it to take Credit Balances only into account for computation of Interest
- Debit Balances Only:: Select it to take Debit Balances only into account for computation of Interest
- Interest Period : Enter the Start & End date of the Period for which the Rate would be applicable at Applicable field
- At From Field, enter the Start Date of the period from which the specified Interest would be applicable
- At To Field, enter the End Date of the period for which the specified Interest would be applicable
- Rounding Method : At Rounding, select the Rounding Method from the list and specify the Rounding Limit as follows:
- No Rounding: Select Not Applicable if no rounding is applicable. The computed Interest is auto rounded to nearest paise (equivalent to Normal Rounding to .01 Limit, as explained next).
- Lower Rounding: Select Down ward Rounding to Round off the amount to lower value. The rounded amount is lower than (or equal the computed) amount.
- Higher Rounding: Select Upward Rounding to Round off the amount to higher value. The rounded amount is higher than (or equal to computed amount).
- Normal Rounding: Select Normal Rounding to Round off to the nearest Value. The Rounded amount may be higher or lower than the computed amount, as per Rounding limit set (explained next).
Rounding Limit : In any of the above 3 Rounding Methods, at Limit , specify the Rounding limit (like .01, .10, 1.00, 10.00. etc).
You may set different Rates for Debit & Credit Balances.
This way, you may specify multiple rates for different periods (their periods must not overlap), or you may have separate parameters for Debit & Credit Balances. Press <enter> at next blank rate filed to terminate Interest parameter entry for the Ledger Account.Type Y to save the Ledger entry
While entereing multiple rates, ensure that period for ecah period is distinct & continuous (staggering) The period should neither be overlapping, nor gapped
Multi rate Ledger Account Interest Computation in Tally
Interest Parameters of Multi Rate Interest
Here is an example of Multiple Rate Interest set up for ledger Account and Interest statement based on multiple rates.
Advanced Multiple Interest rate parameters set up in Tally
Ledger Account Transactions
Ledger Account Interest report in tally
Multi rate Ledger Interest Statement Display in Tally
To view the details of Interest computation, select GoT>Display> Statement of Accounts>Interest Calculations. Then select Interest Receivables or Interest Payables and drill down through the Account Group / Account Ledger, to finally get the details of Interest Computation
The computed Interest for Debit & Credit Balances for the respective period may be computed separately at the specified Rate
Ledger Account Interest Statement in Tally
Multi rate ledger Interest Computation in Tally
Here is another example of Multiple Rate Interest set up for ledger Account and Interest statement based on multiple rates.
A loan of Rs 25000 was paid on 1.5.2009 to A K Das. He repaid Rs 10000 on 3.7.09
Interest is computed @1.5.09 to 31.5.09 @ 12% p.a and from 1.6.09 to 31.8.09 @ 18% p.a
Multiple Rate Interest parameters of Ledger Account
Multi Rate Ledger Interest parameter set up in Tally
Multiple Rate Interest report in Tally
Multi Rate Ledger Interest Statement in Tally
Multi Rate Ledger Interest Computation in Tally
Here is another example of Multiple Rate Interest set up for ledger Account and Interest statement based on multiple rates.
A loan of Rs 25000 was paid on 1.5.2009 to A K Das. He repaid Rs 10000 on 3.7.09
Interest is chargeable from 1.5.09 to 31.5.09 @ 12% p.a (365 days), from 1.6.09 to 30.6.09 @ 1% (calendar Month) & 1.5% (30 days month) from 1.7.09 onwards.
Compute Interest from 1.4.09 to 31.8.09
Multiple Rate Interest parameters of Ledger Account
Multi-Rate Ledger Interest parameter set up in Tally
Multiple Rate Interest parameters of Ledger Account
Ledger Account Multiple Interest Rate statement in Tally
Interest Debit & Credit Notes
Interest Statements shows the Interest figures for information only and not posted to accounts. To post into accounts, you have to create a Debit / Credit Note for computed amount of Interest.
Interest Debit Note : You may create a Debit Note for Interest Receivable from the Party (normally Customer) for delayed payments by the Party (Customer). Debit the Party Account and credit Interest Account, as per the Interest computed shown in Interest Statement
Debit Note entry for Ledger Account Interest in Tally
Interest Credit Note : You may create a Credit Note for Interest Payable to the Party (normally Supplier) for delayed payments to the Party (Supplier). Credit the Party Account and DebitInterest Account
Credit Note entry for Leger Account Interest in Tally
Create Debit & Credit Notes in usual way, as per the Interest computed shown in Interest Statement
Interest Journal Voucher
You may alternatively (instead of Interest Debit Note / Credit Note) create a Journal Voucher for computed amount of Interest Payable to the Party (normally Lender ) as well Interest Receivable from the Party (normally Borrower) for Interest Due for a specified period.
Interest Receivable : Debit The Party Account (normally Borrower) & credit Interest A/c by the amount of Interest Received / Receivable
Journal Voucher for Interest Receivable in Tally
Interest Payable :Debit Interest A/c & Credit Party Account (normally Lender) by the amount of Interest Paid/ Payable
Journal Voucher for Interest Payable in Tally
Ledger Account Interest Reports in Tally
To view the Party wise Interest and details of computation of Interest, Select Display > Statement of Accounts > Interest Calculations to get Interest Calculations Menu containing reports of Interest Receivable and Payable, for Ledger and Group Interest.
Interest Reports menu in Tally
Interest Receivables / Payables report shows Interest computed as per Interest parameters set, for the specified period,. The contents, format & buttons at Interest Receivables (F-11A) & Interest Payables Reports are similar
Interest Receivables Statement in Tally
At Interest Calculations Menu, select Interest Receivables to get Receivables Report It shows the Ledger wise details of Interest, when the Net Interest computed for the Ledger is Debit (Party A/c to be Debited & Interest A/c to be Credited)
Interest Receivables Statement in Tally
Interest Payables Statement
Select Interest Payables to get Payables Report . It shows the Ledger wise details of Interest, when the Net Interest computed for the Ledger is Credit (Interest A/c to be Debited & Party A/c to be Credited)
Ledger Account Interest Statement in Tally
Leger Interest Statement shows the details of Interest computation for a selected Ledger Account.
At Interest Reports Menu, select Ledger and select the Ledger (Loan, Supplier or Customer) to get Ledger Interest Report
Ledger Interest statement in Tally
You may also getLedger Interest Statement by ultimately drilling down through a Ledger Account from Interest Receivable / Interest Payable Report or from Group Interest Statement.
Buttons at Ledger Interest Statement in Tally
Buttons at Ledger Interest report in Tally
At Ledger Interest Statement, you get following buttons
- F4: Ledger : To get the list of Ledger Accounts to select a Ledger Account to get Ledger Interest Statement for the selected Ledger Account
- C:Contact : To get Ledger Contact screen showing the complete details of Party Address, Contact person etc of the selected Ledger Account. The information is displayed in a pop up screen for reference only but not printed in any Interest report.
Account Group Interest Statement in Tally
Account Group Interest Statement shows Interest for all ledger accounts under the selected Group (listing all Sub-Groups and Ledgers). The Contents of the report is similar to Interest Receivables / Payables.
At Interest Reports Menu, select Group and select the Account Group to get Group Interest Statement in respect of all ledgers under the selected Group.
Account Group Interest Statement in Tally
Buttons at Group Interest Statement in Tally
Buttons for Group Interest in Tally
At Group Interest Statement you get following buttons
- F4 : Group : Select this button to get the list of Account Groups to select an Account Group to get Group Interest Statement for the selected Account Group.
- F5 : Ledger / Group Interest : Click F5:Led-wise / Grouped toggle button to see the figures of outstanding & accrued Interest of Ledger / Group
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