Various Interest Calculation Methods in Tally Prime Demystified

What is interest calculation?

TallyPrime automatically calculates the pending interest amount till the date of your entry and auto-fills the amount column with the pending interest of the ledger selected.

Calculate Interest formula:

The formula for Simple Interest (SI) is “principal x rate of interest x time period divided by 100” or (P x R x T/100).
Example: 10,000 x 8 x 5 = INR 4,00,000 / 100 = 4000.

Purchase Interest:

Purchase Interest typically refers to the interest incurred on purchases made on credit.
This interest may be charged by your suppliers or creditors when you delay making payments for goods or services you have received.
It's an additional cost associated with your purchases.

Sales Interest:

Sales Interest typically refers to the interest income earned on sales made on credit.
This interest income may be charged by your customers or debtors when they delay making payments for the goods or services they have purchased from your company.
It's additional revenue earned because of extending credit terms to your customers.

Bank A/c Interest:

Bank A/C Interest typically refers to the interest income or expense associated with your bank accounts.
This can include interest earned on your bank deposits or interest paid on loans or overdrafts provided by the bank.

The following would be recording in journal using double entry system. Do the posting process from journal entries and prepare the trial balance, trading A/c, profit & loss A/c and balance sheet in the books of Jeeva Royal Electronics for the following year 2023 to 2024.

Jeeva Royal Electronics
Address	10, Junction Main Road, Veerapandiar Nagar, Swarnapuri, Salem-636004
Phone	0427 589 4563
Mobile No	95940 50186
Fax No	-
Email	jeevaroyalelectronic@gmail.com
Website	jeevaroyalelectronic.in

Particular	Amount	Particular	Amount
SBI Bank	200000	Capital	300000
Cash	100000	Sundry income	80000
Raw materials	50000	Bank loan	100000
Bill receivable	80000	Provision Bad debit	75000
Factory Rent	20000	Reserve fund	33000
Royalty on production	50000	Bill Payable	350000
Free hold property	80000	Bad debit recovered	62000
Discount allowed	20000	Rent received	30000
Investing on shares	100000	Building	180000
Stock in hand	150000

Answer : 10,30,000

Apr 01 Goods purchased from Meera Electronics for the following. Bill No: MS101 (30 days)

Sony Tv 500Nos@ Rs. 5600
Sony I- Pad 50Nos@ Rs. 4500
Lenovo laptop 7Nos@ Rs. 10000
Micro max Phone 8Nos@ Rs.3000

Rate of Interest	15%
Interest Style	365 days
Interest Balance	Credit Balance Only
Applicability	Past Due Date by 30 Days
Form	Due Date of Invoice Ref

Apr 02 Goods Sold Thanvika Electronics for the following. Bill No: JRE102 (20 days)

Sony Tv 300Nos@ Rs. 6600
Sony I- Pad 20Nos@ Rs. 5600
Lenovo laptop 3Nos@ Rs. 15000
Micro max Phone 3Nos@ Rs.7000

Rate of Interest	12%
Interest Style	365 days
Interest Balance	Debit Balances Only
Applicability	Always
Form	Eff. Date of Transaction

Apr 10 Credit Amount received from Sree Electronics Rs. 100000. Bill No: SE103(10 days)

Rate of Interest	7.50%
Interest Style	365 days
Interest Balance	Credit Balances Only
Applicability	Always
Form	Eff. Date of Transaction

Apr 12 Jeeva Royal Electronics fully settled to Sree Electronics with interest.

Apr 12 Amount paid form Ramay was Rs. 25000

Bank Interest

Rate of Interest	16%
Interest Style	365 days
Interest Balance	All balance
Applicable from	1-sep-2022 to 15-Nov-2022
Rounding	Normal rounding
Limit	1

Create a New Company

Create a New Company

Go to the Gateway of Tally.
Select "Create Company" or "Alt+K" (exact wording may vary based on your version).

Fill Company Information:

Company Name: Jeeva Royal Electronics
Address: 10, Junction Main Road, Veerapandiar Nagar, Swarnapuri, Salem- 636004
Phone: 0427 589 4563
Mobile No: 95940 50186
Fax No: (leave it blank)
Email: jeevaroyalelectronic@gmail.com
Website: jeevaroyalelectronic.in

Financial Year Settings:

Set the Financial Year starting from April 1, 2022, to March 31, 2023.
Similarly, set the next financial year from April 1, 2023, to March 31, 2024.

Enable Interest Calculation:

While filling in company details, you will find the option "Enable Interest Calculation." Set it to "Yes."

Select the Appropriate Security Controls, TDS/TCS, and GST Details:

Configure security controls, TDS/TCS details, and GST details based on the requirements of M/s. Jeeva Pvt Ltd.

Save the Company:

Press Ctrl + A to save the company details.

Create Opening Balance

Go to Gateway of Tally:

Navigate to the "Gateway of Tally."

Access Ledger Creation:

Select "Accounts Masters" from the main menu.

Create Ledgers:

Choose "Ledgers" and then "Create" to create new ledgers.

Enter Ledger Details:

SBI Bank:

Name: SBI Bank
Under: Bank Accounts
Opening balance: Rs. 200,000

Cash:

Name: Cash
Under: Cash-in-Hand
Opening balance: Rs. 100,000

Raw materials:

Name: Raw materials
Under: Direct Expenses
Opening balance: Rs. 50,000

Bill receivable:

Name: Bill receivable
Under: Current Liabilities
Opening balance: Rs. 80,000

Factory Rent:

Name: Factory Rent
Under: Indirect Expenses
Opening balance: Rs. 20,000

Royalty on production:

Name: Royalty on production
Under: Indirect Income
Opening balance: Rs. 50,000

Freehold property:

Name: Freehold property
Under: Fixed Assets
Opening balance: Rs. 80,000

Discount allowed:

Name: Discount allowed
Under: Indirect Expenses
Opening balance: Rs. 20,000

Investing on shares:

Name: Investing on shares
Under: Investments
Opening balance: Rs. 100,000

Stock in hand:

Name: Stock in hand
Under: Current Assets
Opening balance: Rs. 150,000

Save the Ledgers:

Press Ctrl + A to save each ledger entry.

Select Chart of Accounts:

Under the "Gateway of Tally" menu, choose "Chart of Accounts" and then select "Groups" or "Ledgers."

Apr 01 Goods purchased from Meera Electronics for the following. Bill No: MS101 (30 days)

Sony Tv 500Nos@ Rs. 5600
Sony I- Pad 50Nos@ Rs. 4500
Lenovo laptop 7Nos@ Rs. 10000
Micro max Phone 8Nos@ Rs.3000

Rate of Interest	15%
Interest Style	365 days
Interest Balance	Credit Balance Only
Applicability	Past Due Date by 30 Days
Form	Due Date of Invoice Ref

Step 1 : Create Party Ledger

Go to "Gateway of Tally."
Select "Accounts Masters" from the main menu.
Choose "Ledgers" and then "Create."
Enter the following details for the party ledger:

Name: M/s. Meera Pvt Ltd
Under: Sundry Creditors (or a suitable group)
Address: [Enter the address]
Contact Details: [Enter phone, email, etc.]
Calculate Interest Transaction-by-transaction: Yes
Override parameters for each Transaction: Yes
Override advanced parameters: Yes
Include transaction date for interest calculation: Yes
For amounts added: Yes
For amounts deducted: Yes
Rate of Interest: 15%
Interest Style: 365 Days
Interest Calculation: Credit Balance Only
Applicability: Set "Yes" for Past Due Date
By: 30 Days
Form: Due Date of Invoice Ref

Press Ctrl + A to save.

Step 2 : Record Purchase Voucher

Go to "Gateway of Tally."
Select "Accounting Vouchers" from the main menu.
Choose "F9: Purchase" to create a new purchase voucher.
Enter the following details in the purchase voucher:

Supplier Invoice No: MS101
Supplier Invoice Date: [Enter the invoice date]
Party's A/c Name: M/s. Meera Pvt Ltd

For each item:

Particulars: Sony TV

Qty: 500
Rate: 5600

Particulars: Sony I-Pad

Qty: 50
Rate: 4500

Particulars: Lenovo Laptop

Qty: 7
Rate: 10000

Particulars: Micro Max Phone

Qty: 8
Rate: 3000

Press Ctrl + A to save the purchase voucher.

Apr 02 Goods Sold Thanvika Electronics for the following. Bill No: JRE102 (20 days)

Sony Tv 300Nos@ Rs. 6600
Sony I- Pad 20Nos@ Rs. 5600
Lenovo laptop 3Nos@ Rs. 15000
Micro max Phone 3Nos@ Rs.7000

Rate of Interest	12%
Interest Style	365 days
Interest Balance	Debit Balances Only
Applicability	Always
Form	Eff. Date of Transaction

Step 1 : Create Party Ledger

Go to "Gateway of Tally."
Select "Accounts Info" from the main menu.
Choose "Ledgers" and then "Create."
Enter the following details for the party ledger:

Name: M/s. Thanvika Pvt Ltd
Under: Sundry Debtors (or a suitable group)
Address: [Enter the address]
Contact Details: [Enter phone, email, etc.]
Rate of Interest: 12%
Interest Style: 365 Days
Interest Calculation: Debit Balances Only
Applicability: Always
Form: Eff. Date of Transaction

Press Ctrl + A to save.

Step 2 : Record Sales Voucher

Go to "Gateway of Tally."
Select "Accounting Vouchers" from the main menu.
Choose "F8: Sales" to create a new sales voucher.
Enter the following details in the sales voucher:

Customer Invoice No: MS102
Customer Invoice Date: [Enter the invoice date]
Party's A/c Name: M/s. Thanvika Pvt Ltd

For each item:

Particulars: Sony TV

Qty: 300
Rate: 6600

Particulars: Sony I-Pad

Qty: 20
Rate: 5600

Particulars: Lenovo Laptop

Qty: 3
Rate: 15000

Particulars: Micro Max Phone

Qty: 3
Rate: 7000

Press Ctrl + A to save the sales voucher.

VOUCHER TYPE

Debit Note Voucher

Step 1 : Access Voucher Type Alteration

Go to "Gateway of Tally."
Select "Accounts Info" from the main menu.
Choose "Voucher Types" and then "Alter."

Step 2 : Create a New Voucher Type

Select "Debit Note" from the list of voucher types.
Press Enter to open the voucher type alteration screen.

Step 3 : Update Voucher Type Details

Make the following modifications:

Name of Class: Receivable Interest
Use class for interest accounting: Yes
Amounts to be treated as compound interest: Yes

Step 4 : Save Changes

Press Ctrl + A to save the changes.

Credit Note Voucher

Step 1 : Access Voucher Type Alteration

Go to "Gateway of Tally."
Select "Accounts Info" from the main menu.
Choose "Voucher Types" and then "Alter."

Step 2 : Create a New Voucher Type

Select "Credit Note" from the list of voucher types.
Press Enter to open the voucher type alteration screen.

Step 3 : Update Voucher Type Details

Make the following modifications:

Name of Class: Payable Interest
Use class for interest accounting: Yes
Amounts to be treated as compound interest: Yes

Step 4 : Save Changes

Press Ctrl + A to save the changes.

Interest Received Voucher

Step 1 : Create a Voucher Class

Go to "Gateway of Tally."
Select "Accounts Masters" from the main menu.
Choose "Voucher Types" and then "Create."
Enter the Voucher Class details:

Name of Class: Receivable Interest
Type of Class: Debit Note
Applicability: All Entries
Classes to Include: Leave it blank for all classes.

Save the Voucher Class.

Step 2 : Create a Debit Note Voucher

Go to "Gateway of Tally."
Select "Accounting Vouchers" from the main menu.
Choose "Alt +F5: Debit Note" to create a new Debit Note voucher.

Step 3 : Use Voucher Class

While entering the Debit Note Voucher:

Debit Thanvika Pvt Ltd Account: Rs. 709.50
Credit Interest Received Account: Rs. 709.50
Select "Receivable Interest" as the Voucher Class for the Debit Note.

Step 4 : Save the Voucher

Press Ctrl + A to save the Debit Note Voucher.

Interest Payable Voucher

Step 1 : Create a Voucher Class

Go to "Gateway of Tally."
Select "Accounts Masters" from the main menu.
Choose "Voucher Types" and then "Create."
Enter the Voucher Class details:

Name of Class: payable Interest
Type of Class: Credit Note
Applicability: All Entries
Classes to Include: Leave it blank for all classes.

Save the Voucher Class.

Step 2 : Create a Debit Note Voucher

Go to "Gateway of Tally."
Select "Accounting Vouchers" from the main menu.
Choose "Alt +F6: Credit Note" to create a new Credit Note voucher.

Step 3 : Use Voucher Class

While entering the Credit Note Voucher:

Debit Interest Received Account: Rs. 20.50
Credit Sree Electronic Account: Rs. 20.50
Select "Payable Interest" as the Voucher Class for the Credit Note.

Step 4 : Save the Voucher

Press Ctrl + A to save the Credit Note Voucher.

Apr 10 Credit Amount received from Sree Electronics Rs. 100000. Bill No: SE103(10 days)

Rate of Interest	7.50%
Interest Style	365 days
Interest Balance	Credit Balances Only
Applicability	Always
Form	Eff. Date of Transaction

Step 1 : Create Party Ledger

Go to "Gateway of Tally."
Select "Master" from the main menu.
Choose "Create" under "Accounting Masters" and then "Ledgers."
Create a party ledger named "Sree Electronic."

Step 2 : Configure Ledger for Interest Calculation

Go to "Gateway of Tally."
Select "Accounts Info" from the main menu.
Choose "Ledgers" and then "Alter."
Select "Sree Electronic."
Set the following details for the ledger:

Rate of Interest: 7.50%
Interest Style: 365 days
Interest Calculation: Simple Interest
Applicability: Always
Form: Effective Date of Transaction

Step 3 : Create Receipt Voucher

Go to "Gateway of Tally."
Select "Accounting Vouchers" from the main menu.
Choose "F6: Receipt" to create a new receipt voucher.

Step 4 : Enter Details

While entering the receipt voucher:

Debit Cash Account: Rs. 100,000
Credit Sree Electronic Account: Rs. 100,000

Step 5 : Save the Voucher

Press Ctrl + A to save the receipt voucher.

Apr 12 Jeeva Royal Electronics fully settled to Sree Electronics with interest.

Step 1: Settle the Account with Interest

Go to "Gateway of Tally."
Select "Accounting Vouchers" from the main menu.
Choose "F5: Payment" to create a new payment voucher.

Step 2: Enter Details

While entering the payment voucher:

Debit Sree Electronics Account: Enter the total amount to be settled.
Credit Cash Account: Enter the amount paid in cash.

Step 3: Save the Voucher

Press Ctrl + A to save the payment voucher.

Apr 12 Amount paid form Ramay was Rs. 25000

Step 1: Create Party Ledger for Ramya

Go to "Gateway of Tally."
Select "Master" from the main menu.
Choose "Create" under "Accounting Info" and then "Ledgers."
Create a party ledger named "Ramya."

Step 2: Create Payment Voucher

Go to "Gateway of Tally."
Select "Accounting Vouchers" from the main menu.
Choose "F5: Payment" to create a new payment voucher.

Step 3: Enter Details

While entering the payment voucher:

Debit Ramya Account: Enter Rs. 25,000.
Credit Cash Account: Enter Rs. 25,000.

Step 4: Save the Voucher

Press Ctrl + A to save the payment voucher.

Bank Interest

Rate of Interest	16%
Interest Style	365 days
Interest Balance	All balance
Applicable from	1-sep-2022 to 15-Nov-2022
Rounding	Normal rounding
Limit	1

Go to "Gateway of Tally."
Select "Master" from the main menu.
Choose "Ledger" under "Accounts Info."
Select "Alter" to modify an existing ledger.
Search and choose the "SBI Bank" ledger.
In the Ledger Alteration screen:

Set "Activate Interest Calculation" to Yes.
Choose "Calculate Interest Based On" and select Voucher Date.
Set "Include Transaction Date for Interest Calculation" to Yes.
Set "For Amounts Added" to Yes.
Set "For Amounts Deducted" to Yes.
Set "Bank Interest" to Yes.
Enter the rate of interest as 16%.
Choose "Interest Style" and select 365 Days.
Set "Interest Balance" to All Balances.
Set "Applicable From" to 1-Sep-2022.
Set "Applicable To" to 15-Nov-2022.
Choose "Rounding Method" and select Normal Rounding.
Set "Limit" to 1.

Press Enter to save the alterations.

Reports

Go to Gateway of Tally:

Navigate to the "Gateway of Tally."

Access Stock Summary:

Select "Reports" from the main menu.
Display More Reports > Statements of Accounts > Group > Bank Accounts > SBI Bank Ledger.