INTEREST CALCULATION IN TALLY ERP9

Interest calculation in tally erp9 made easy in latest versions. Tally has the option to
use simple mode interest calculation and advance mode interest calculation.
Generally interest is calculated on the overdue bills or delayed payments and on
loans. Interest is the income to the receiver and expense for the payer. Before
moving to tally let’s have some more idea about interest.

What is Interest?
As far as a borrower is considered Interest is the cost of amount borrowed from any
financial institution or Individuals and for an investor it is a legitimate return on
money invested.

Types of Interest
Let’s have a few seconds learning about types of interest.There are two types of
interest are there
Simple Interest: Simple interest is an interest which calculated on the principal
amount only .For example Deposited amount 5000 @ 5% annum for three year. The
interest is calculated as
First Year = 5000 x 5 % = 250
Second Year = 5000 x 5% = 250
Third Year = 5000 x 5 % = 250
Total 750
Compound Interest: Compound interest is calculated on the Principle +
Accumulated Interest. Let’s calculate the same example in compounding interest
method.
First Year = 5000 x 5 % = 250.00
Second Year = 5250 x 5% = 262.50
Third Year = 5512.50 x 5 % = 275.62
Total = 788.12
Hope you got an idea on simple interest and compound interest.

Simple Mode Interest calculation in tally

To activate interest calculation
Gateway of Tally > F11 > Accounting Features
In the company feature screen enable the option activate interest calculation by
typing ‘Yes’
and Maintain bill-wise details: Yes .It is important that set Use advanced
parameters to No for Simple interest calculation.
 Maintain bill-wise details : Yes
 Use Debit note and credit note: Yes
 

Interest calculation example simple mode in Tally.ERP 9

On 01-05-2016 Sold goods to CMC Ltd (Sundry Debtor) for Rs 50000 for a credit
period of 30 days. Agreed an interest of 20%/ year on delayed payment. CMC Made
payment on 30-06-2016. Calculate interest as agreed and account the same in Tally.

Step -2- Create Party Ledger

You have to create a customer ledger with interest activated or you can edit existing
ledger for activating interest calculation for that particular party.

Go to Gateway of Tally>Accounts Info>Ledger>Alter/Create

In the ledger creation/Alteration screen set the following option

 Default credit period: 30 days (as in our example we are giving 30 days credit)
 Activate Interest calculation: Yes and press Enter Key.
You will get an interest parameters screen like in below image.

 Calculate Interest Transaction by transaction: Yes, This option will calculate

interest on each transaction.
Upon activating above option a new question will be asked by tally

 Override parameters for each transaction: activating this option will help you
to change the parameters, that is the rate and interest style will be asked during
sales voucher entry.
 Rate : Enter the rate as decided here 20%
 Per: Here four interest style is given 1) 30 Days Month 2) 365-Day Year 3)
Calendar Month 4) Calendar Year. Select 365 Day Year.
Override parameters for each transaction work when you are entering a sales invoice
As Voucher mode in sales or purchase Entry.

Step 3- Sales voucher entry

Enter sales voucher in As voucher mode
Note: In Voucher mode sales entry only interest calculation and override
parameters for each transaction is worked for me. I have tried as Invoice
mode sales entry several times.But interest calculation and override parameter did
not work.Unsure about the reason.May be the use of educational version causing the
issue. Any reader knows the issue please let me know the reason through our
comment form.
In Voucher ,select the Ledger CMC Ltd as debit ,enter bill amount press enter key
,you will get interest parameters screen.This parameters appear because we have
chosen override interest parameters while activating interest for the ledger.
You can change the parameters if you want. Press enter and save the sales voucher.
Accept and save the sales voucher.

View Interest calculation report.

The sales made on 01-05-2016 and till 31-08-2016 .The given credit days were 30
days which ends on  party did not made any payment.As agreed the party due an
interest of 20% per annum. to the total number of over due days. To know the total
interest go to

Gateway of Tally>Display>Statement of Account>Interest

Calculations>Interest Receivable.
Choose the period by clicking Period button or F2 from Keyboard.  01-05-2016 to 31-
08-2016

You will get the summary of the interest calculation,Press enter to drill down until
voucher level.
In the report you can see the number of days, the bill is over due, % interest &
interest amount.

Account interest in Books of account.

The calculated interest does not affect the books of account.This has to be accounted
if needed. Normally when we debit a party account we issue a document called debit
note.You have to create a debit note in tally and send a printout to the party.
Go to Gateway of Tally> Accounting Voucher > Debit note ( Ctrl+ F9)
In the debit note ,debit the party name, create a new reference , credit the Interest
received account & save the screen.
Now the interest is accounted and party account debited and increased by interest
amount.This is how we can do simple interest calculation in Tally ERP 9.

Interest calculation

1. Mr. rajesh has invested rs 2,00,000 in fixed deposit a/c which produces a
simple interest @10% p.a. on the same date. He also opens a savings
deposit a/c with sum of rs. 1,00,000 bears the simple interest @4% p.a. find
out the amount of interest accrued in both the deposits as on 31 st march.
2. On 1st apr mr. robo get a loan from IOB rs. 3,00,000 with a simple interest
of 16%p.a. he also receives rs 2,00,000 from UCO bank @15% simple
interest p.a. find out the amount due on each loan a/c as on 31st march.
3. On 1st june tata finance ltd., has lend a loan of rs 5,00,000 to sriram groups
@15%. P.a. as simple interest on 31st Dec. sriram groupspaid the laon
amount with interest. Journalise the transactions in tally software.
4. On 1st aug. TTK ltd. Has received a loan of rs. 10,00,000 from M/s Raymond
ltd. For their project with a simple interest @18%. P.a. on 31 st march. TTK
ltd. Has paid their loan along with interest. Journalise the above
transactions.