10 Calculation of Interest

Tally can automatically calculate:

  • Interest Receivable (interest earned from customers)
  • Interest Payable (interest owed to suppliers)

Interest may be calculated on outstanding balances, overdue invoices, advances, at simple or compound rates, as per the configuration.

10.1 Enable Interest Calculations in Tally

Before use, enable interest calculation features:

  1. Go to Gateway of Tally
  2. Press F11 – Features
  3. Select Accounting Features
  4. Set Activate interest calculation → YES
  5. Set Use advanced parameters → YES (for bill-wise interest)
  6. Press Ctrl + A to save

10.2 Create or Modify Ledgers for Interest Calculation

Interest settings are applied at the ledger level (e.g. customer/supplier).
Interest can be enabled for: - Sundry Debtors (Interest Receivable) - Sundry Creditors (Interest Payable) - Loans & Advances - Bank Loans - Capital Accounts

10.3 Interest Receivable (Customer) — Step-by-Step

Example Scenario:
Sale to ABC Traders
- Sale amount: ₹10,000
- Due date: same day
- Payment late, interest at 18% p.a. on overdue

10.3.1 Create Customer Ledger

  1. Go to Gateway → Accounts Info → Ledgers → Create
  2. Name: ABC Traders
  3. Under Group: Sundry Debtors
  4. Maintain Bill-wise details → YES
  5. Activate Interest Calculation → YES
  6. Calculate Interest Transaction-by-Transaction → YES
  7. Override Parameters → YES
  8. On advanced parameters screen:
    • Interest Style: On Outstanding
    • Calculate From: Due Date
    • Rate: 18% per annum
    • Applicability: Always
  9. Press Ctrl + A to save

10.3.2 Enter Sales Transaction

  • Go to Accounting Vouchers → F8 Sales
  • Customer: ABC Traders
  • Sale: ₹10,000
  • Tally automatically creates a bill reference (e.g. Bill 001)

10.3.3 Payment Arrives Late

  • Customer pays after 30 days
  • Go to Accounting Vouchers → F6 Receipt
  • Customer: ABC Traders
  • Amount: ₹10,000
  • Select bill Bill 001
  • Payment date: 30 days late

Tally notes payment, keeps interest outstanding.

10.3.4 View Interest Receivable

  • Go to Gateway → Display More Reports → Statement of Accounts → Interest Calculations → Ledger
  • Select: ABC Traders

You will see: - Principal amount - Days overdue - Interest rate - Interest amount

Example Output:
ABC Traders
Bill 001
Principal: ₹10,000
Days overdue: 30
Interest: ₹150
Calculation: ₹10,000 × 18% × 30/365

10.3.5 Pass Journal for Interest Receivable

  • Go to Accounting Vouchers → F7 Journal
  • Debit: ABC Traders – ₹150
  • Credit: Interest Income (Indirect Income) – ₹150
  • Narration: “Interest receivable on Bill 001 for 30-day delay.”

10.4 Interest Payable (Supplier)

Example Scenario:
Supplier: XYZ Suppliers
- Amount owed: ₹20,000
- Payment delayed by 45 days
- Interest charged: 12% p.a.

10.4.1 Create Supplier Ledger

  1. Go to Gateway → Accounts Info → Ledgers → Create
  2. Name: XYZ Suppliers
  3. Under Group: Sundry Creditors
  4. Maintain bill-wise → YES
  5. Activate Interest Calculation → YES
  6. Calculate interest: Transaction by Transaction
  7. Advanced Parameters:
    • Interest Style: On Outstanding
    • Calculate From: Expiry / Due Date
    • Rate: 12% p.a.
    • Applicability: Always

10.4.2 Record Purchase

  • Go to Accounting Vouchers → F9 Purchase
  • Supplier: XYZ Suppliers
  • Amount: ₹20,000
  • Bill ref: P001

10.4.3 Payment Delayed

  • F5 Payment
  • Supplier: XYZ Suppliers
  • Amount: ₹20,000
  • Select bill P001

Tally tracks overdue interest.

10.4.4 View Interest Payable

  • Go to Gateway → Display More Reports → Statement of Accounts → Interest Calculations → Ledger
  • Select: XYZ Suppliers

Example Output:
XYZ Suppliers
Bill P001
Principal: ₹20,000
Days overdue: 45
Rate: 12%
Interest: ₹296.71
Calculation: ₹20,000 × 12% × 45/365

10.4.5 Book Interest Payable (Journal)

  • Go to F7 Journal
  • Debit: Interest Expense (Indirect Expense) – ₹296.71
  • Credit: XYZ Suppliers – ₹296.71
  • Narration: “Interest payable to supplier for P001”

10.5 Interest Groups & Ledgers

For reporting/classification: - Interest Income - Gateway → Accounts Info → Ledgers → Create - Under Group: Indirect Incomes - Interest Expense - Under Group: Indirect Expenses

These appear in P&L automatically.

10.6 Reports Used for Interest

  • Interest Calculation Ledger Report
    • Path: Display → Statement of Accounts → Interest Calculations → Ledger
  • Interest Outstanding Summary
    • Path: Display → Statement of Accounts → Interest Calculations → Outstanding
  • Interest Voucher Report
    • Shows all interest journals posted

10.7 Example

Transaction Amount Interest Rate Status
Sale to ABC Traders ₹10,000 18% 30 days late → Interest receivable ₹150
Purchase from XYZ Suppliers ₹20,000 12% 45 days late → Interest payable ₹296.71

Journal Entries: - ABC Traders Dr ₹150
To Interest Income ₹150
- Interest Expense ₹296.71 Dr
To XYZ Suppliers ₹296.71

10.8 Common Problems & Solutions

Problem Cause Fix
Interest not showing Interest not enabled Enable in ledger features
Wrong days count Using voucher date, not due Set “Calculate From” = Due Date
Interest for whole ledger “Apply to all balances” on Use transaction-wise option
Incorrect rate applied Advanced parameters missing Set rate at ledger level