Simple & Compound Interest Calculation

1. Core Concept

  • Interest Calculation: An automated tracking feature in TallyPrime that calculates interest on outstanding receivables (debtors), payables (creditors), bank loans, or advances based on pre-configured interest rates and time periods.
  • Two Main Applications:
    • Outstanding / Bill-wise Interest: Charging interest to customers on overdue bills (e.g., late payment penalties) or tracking interest payable to suppliers for delayed settlements.
    • Ledger Balance Interest: Calculating interest on simple loan balances or bank deposits over time.
  • Accounting Mechanism: To record calculated interest into financial ledgers, debit or credit interest using Debit Notes or Credit Notes (or Debit/Credit Note Voucher Classes configured for Interest).

2. Enabling Interest Calculation in TallyPrime

Step A: Enable Feature at Company Level

  1. Press F11 (Features) on the Gateway of Tally.
  2. Set Enable Interest Calculation to Yes.
  3. Press Ctrl + A to save.

Step B: Enable Interest Parameters in Ledger Masters

  1. Gateway of Tally → Alter → Ledger → Select Party (e.g., Keerti Computers or Bank Loan A/c).
  2. Set Activate Interest Calculation? to Yes.
  3. Configure Interest Parameters:
    • Calculate Interest Transaction-by-Transaction? Set to Yes (for Bill-wise interest).
    • Include Transactions date for interest calculation? Choose options for Amount Added / Amount Deducted.
    • Rate: Enter interest percentage (e.g., 12% or 18%).
    • Interest Style / Period: Select calculation calendar:
      • 30-Day Month
      • 365-Day Year
      • Calendar Month
      • Calendar Year
    • Calculate Interest From: Date of Amount or Effective Date of Transaction / Due Date.

3. Setting Up Voucher Classes for Automated Interest Adjustment

To post calculated interest directly into ledgers using Debit or Credit Notes:

  1. Gateway of Tally → Alter → Voucher Type → Debit Note (for charging interest to debtors) or Credit Note (for interest payable).
  2. Type Class Name: Simple Interest.
  3. Set Use Class for Interest Accounting? to Yes.
  4. Save with Ctrl + A.

4. Complete Practice Set

Part 1: Setup Ledger Masters & Interest Rates

Party / Ledger Name Group (Under) Interest Rate Interest Style Calculate From
Keerti Computers Sundry Debtors 18% p.a. 365-Day Year Due date of invoice (Credit period: 30 days)
Sushant Infotech Sundry Debtors 12% p.a. Calendar Year Bill Date
HDFC Bank Loan A/c Secured Loans 10% p.a. 365-Day Year Ledger Balance Date

Part 2: Recording Transactions & Outstanding Bills

Date Voucher Type Party / Ledger Amount (₹) Bill Ref & Due Date Narration
1-Apr Sales (F8) Keerti Computers 1,00,000 INV-101 (Due: 30 days → 1-May) Being credit sales made
1-Apr Sales (F8) Sushant Infotech 50,000 INV-102 (Immediate due) Being credit sales made
1-Apr Receipt (F6) HDFC Bank Loan 5,00,000 — Being term loan amount received

Part 3: Calculating Interest accrued on 02-May

  • Keerti Computers (Overdue Interest):
    Invoice Date: 1-Apr | Due Date: 1-May | Calculation Date: 02-May
    Overdue Days: 30 days (from 1-May to 02-May)
    Interest = (₹1,00,000 × 18 × 30) / (365 × 100) = ₹1,479.45
  • Sushant Infotech (Interest from Bill Date):
    Outstanding Period: 1-Apr to 02-May (60 days)
    Interest = (₹50,000 × 12 × 60) / (365 × 100) = ₹986.30
  • HDFC Bank Loan (Bank Interest Payable):
    Balance Period: 1-Apr to 02-May (61 days)
    Interest = (₹5,00,000 × 10 × 61) / (365 × 100) = ₹8,356.16

Part 4: Booking Interest via Debit / Journal Note (Alt + F5 / F7)

Date Voucher Type & Class Debit Ledger (Receiver / Expense) Credit Ledger (Giver / Income) Amount (₹) Narration
02-May Debit Note (Simple Interest) Keerti Computers Interest Received A/c 1,479.45 Being late payment interest charged on INV-101
02-May Debit Note (Simple Interest) Sushant Infotech Interest Received A/c 986.30 Being interest charged on overdue balance
02-May Journal (F7) Interest Paid A/c HDFC Bank Loan A/c 8,356.16 Being bank loan interest accrued for April-May

5. Report Verification

1. View Interest Calculation Reports:

  • Navigation Path: Press Alt + G (Go To) → Type Interest Calculations → Select Interest Receivable or Interest Payable.
  • Alternative Path: Gateway of Tally → Display More Reports → Statements of Accounts → Interest Calculations → Ledger / Group.

2. Period Selection in Reports:

  • Inside the Interest Calculation report screen, press F2 (Period) to set the period (e.g., 1-Apr to 02-May) to see exact daily interest breakdowns.