24 December 2012
Interest Tables method: i. Format: According to this method, all the transactions are arranged in the form of an account. There are two additional columns on both the sides of such an account. Ø One Column is meant to indicate the number of days counted from the due date of each transaction to the date of rendering the account. If no specific date is mentioned as the date on which payment is due, the date of the transactions is presumed to be the due date. Ø The other column is meant for writing interest. ii. Calculation of Interest: With the help of ready made tables (Simple Interest Tables), interest due on different amounts at given rates for different periods of time is found out and this is entered against each item separately. The interest columns of both the sides are totaled up and the balance is drawn.
24 December 2012
The Method of Products: i. Format: The method of preparing the Account Current is the same as in the method of interest tables, the method of calculating the interest alone remains the same but for minor modifications. ii. Product Column: In this method the Product Column replaces the Interest Column of the Interest Method. The product is obtained by multiplying the amount of the transaction by the number of days from the Due Date to the date of the Account. The Product column is then balanced so as to ascertain the figure on which the interest (net) is to be calculated. iii. Calculation of Interest: The interest is then calculated for a single day on the balance in the product column and is posted to the Account Current on the side opposite to the side where the “Product Balance” stands. iv. Net Interest: This method calculates the net interest directly, i.e., interest payable and interest due are mutually set off and only the net interest due/receivable is reflected in the Account Current. Interest on the individual transactions is not reflected as in the Interest Method. v. Procedure: Steps involved in this method is summarized as follows: Ø Find out the balance of the products as in point (iii). Ø Calculate Interest at the given rate on the balance of the products for a single day, Ø Enter the interest on the appropriate side in the amount column. This entry is made on the side opposite to the side on which the balance of product appears
24 December 2012
c. The Method of product of balances: i. Meaning: This method is also known as periodic balance method and is usually adopted in the case of banks where the balance of the account is taken out after every transaction. ii. Format: The format of preparation of Account Current is as given below. Date Particulars Dr. Cr. Nature of Balance (Dr./Cr.) Balance Amount Days Dr. Product Cr. Product PCC/IPCC_Accounts_theory_______________________________________3 MEC/CEC, CA/CWA & B.Com By Mattupalli Associates for Master Minds iii. Purpose of Columns: The usage of the date and the particulars column are to denote the date and the details of the transactions. The other columns are for the following purposes: Ø The debits/credits to the account are entered in the Dr./Cr. Columns respectively. Ø The Nature of the balance i.e. whether the account has a Dr./Cr. balance is reflected the “Nature of Balance” Column. Ø The Amount of balance is reflected in the “Balance Amount” Column. Ø In the “Days” Column the no. of days from the date of the transaction to that of the next transactions in recorded. Ø “Dr. Product”/ “Cr. Product” consists of the product of the Dr. /Cr. column and the Days column. iv. Calculation of Interest: The Interest is calculated as under: Ø The Columns are filled up to the date of the account as specified in point (c). Ø The total of the Dr. Product and the Cr. Product Columns are arrived at. Ø The interest for one day is calculated for the Dr./Cr. Products, at the appropriate rates and netted off to arrive at the net interest. v. Posting of Interest: The interest amount is posted as follows: If the Dr. Product is greater than the Cr. Product the interest is posted to the Debit of the account, else it is posted to the Credit of the Account.
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