# Interest Calculation in Tally

While creating a ledger account you will get the option.

Activate Interest Calculation?

This prompt appears if you responded Yes to the question Activate Interest Calculations? At F11: Features for the Company. If your response is Yes to that question, you will get another question: Use Advanced Parameters? Giving Yes will activate Advanced Mode and No will restrict to Normal Mode.

If you want interest to be calculated for the Ledger, respond Yes here. You can opt to compute Interest on two methods.

On Outstanding Balance Amounts: In this method, the interest is calculated on outstanding balance. This is normally suitable for Loan Accounts where you compute interest on running balances of the account.

On Outstanding Bills / Invoices / Transactions: This is applicable for ledger for which you have set Bill by Bill option

Calculate Interest Transaction by Transaction?

Give Yes to compute Interest on Bill by Bill basis. If you want Interest to be computed on Balance, respond No.

If you give Yes you will be asked Overwrite parameters for each transaction?

If you want to change Interest parameters during voucher / invoice entry, set Yes. If you want to enforce the parameters as specified in the ledger, give No, and you will not be prompted at the voucher entry

Simple Mode

I will teach you Interest Computations in Simple Mode. Advanced Mode will be discussed in another post.

On Outstanding Balance Amounts

If Bill by Bill option has not been opted for the Ledger, you have to specify Rate of Interest (%) and the Style , from the following

- 30 Day Month
- 365 Day a Year
- Calendar Month
- Calendar Year

This method is suitable for all sorts of loan & deposits accounts like Fixed Deposit, Term Loan, Secured & Unsecured Loan etc. However, it is not suitable for Bank OCC (O/D & CC accounts where the interest is computed as per bank’s own daily balance & not on the basis of you bank book balance.)

On outstanding Bills / Invoices / Transactions

If Bill by Bill option has been opted for the ledger, you will get a screen to define Interest Parameters as shown in picture.

Rate: Specify the rate of Interest in percentage (%)

Per: Select from the options available in popup menu

- 30-day Month
- 365-day Year
- Calendar Month
- Calendar Year

On: Select an option from available Interest Balances popup menu

- All Balances
- Credit Balances Only
- Debit Balances Only

Applicability: Select one from Interest Applicable on pop-up

- Always
- Past Due Date

If you select Past Due Date an additional field by _ days will be there. Give number days.

Calculate from: Select one from Interest Appl From pop-up

- Date of Applicability
- Due Date of Invoice / Ref
- Eff. Date of Transaction

Rounding: Select one from Rounding Methods pop-up

- Not Applicable
- Downward Rounding
- Normal Rounding
- Upward Rounding

If you select any Rounding methods you will be asked for

Limit: Specify the limit fro rounding off (e.g., 0.50)

Tally 9 provides versatile tools to control Interest Calculation and put the control at the user. You may control the applicability and rate beforehand of the transaction and enforce the rule rigidly by not allowing to change the rule on bill to bill basis. This enforces strict rule and you do not have to specify Interest for each Bill. The Interest Computation is governed by the rule set in the Ledger Account.

On the other hand, if you do not like to enforce uniform rate for all the bills relating to the ledger, you may allow to enter interest rates for each bill.

## 1 comments:

Very Informative. Thanks.

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