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Interest calculation in tally erp9 made easy in latest versions. Tally has the option to use simple mode interest calculation and advance mode interest calculation. Generally interest is calculated on the overdue bills or delayed payments and on loans. Interest is the income to the receiver and expense for the payer. Before moving to tally let’s have some more idea about interest.

## What is Interest?

As far as a borrower is considered Interest is the cost of amount borrowed from any financial institution or Individuals and for an investor it is a legitimate return on money invested.

## Types of Interest

Let’s have a few seconds learning about types of interest.There are two types of interest are there

**Simple Interest:** Simple interest is an interest which calculated on the principal amount only .For example Deposited amount 5000 @ 5% annum for three year. The interest is calculated as

First Year = 5000 x 5 % = 250

Second Year = 5000 x 5% = 250

Third Year = 5000 x 5 % = 250

Total 750

**Compound Interest:** Compound interest is calculated on the Principle + Accumulated Interest. Let’s calculate the same example in compounding interest method.

First Year = 5000 x 5 % = 250.00

Second Year = 5250 x 5% = 262.50

Third Year = 5512.50 x 5 % = 275.62

Total = 788.12

Hope you got an idea on simple interest and compound interest.

## Simple Mode Interest calculation in tally

To activate interest calculation

**Gateway of Tally > F11 > Accounting Features**

In the company feature screen enable the option** activate interest calculation by typing ‘Yes’**

and **Maintain bill-wise details: Yes** .It is important that set **Use advanced parameters to No** for Simple interest calculation.

- Maintain bill-wise details :
**Yes** - Use Debit note and credit note:
**Yes**

## Interest calculation example simple mode in Tally.ERP 9

### Step -2- Create Party Ledger

You have to create a customer ledger with interest activated or you can edit existing ledger for activating interest calculation for that particular party.

Go to **Gateway of Tally>Accounts Info>Ledger>Alter/Create**

In the ledger creation/Alteration screen set the following option

- Default credit period: 30 days (as in our example we are giving 30 days credit)
- Activate Interest calculation: Yes and press Enter Key.

You will get an interest parameters screen like in below image.

- Calculate Interest Transaction by transaction: Yes, This option will calculate interest on each transaction.

Upon activating above option a new question will be asked by tally

- Override parameters for each transaction: activating this option will help you to change the parameters, that is the rate and interest style will be asked during sales voucher entry.
- Rate : Enter the rate as decided here 20%
- Per: Here four interest style is given 1) 30 Days Month 2) 365-Day Year 3) Calendar Month 4) Calendar Year. Select 365 Day Year.

Override parameters for each transaction work when you are entering a sales invoice As Voucher mode in sales or purchase Entry.

## Step 3- Sales voucher entry

Enter sales voucher in **As voucher** mode

**Note:** In **Voucher mode** sales entry only interest calculation and override parameters for each transaction is worked for me. I have tried as I**nvoice mode** sales entry several times.But interest calculation and override parameter did not work.Unsure about the reason.May be the use of educational version causing the issue. Any reader knows the issue please let me know the reason through our comment form.

In Voucher ,select the Ledger CMC Ltd as debit ,enter bill amount press enter key ,you will get interest parameters screen.This parameters appear because we have chosen override interest parameters while activating interest for the ledger.

You can change the parameters if you want. Press enter and save the sales voucher.

Accept and save the sales voucher.

## View Interest calculation report.

The sales made on 01-05-2016 and till 31-08-2016 .The given credit days were 30 days which ends on party did not made any payment.As agreed the party due an interest of 20% per annum. to the total number of over due days. To know the total interest go to

**Gateway of Tally>Display>Statement of Account>Interest Calculations>Interest Receivable.**

Choose the period by clicking Period button or F2 from Keyboard. 01-05-2016 to 31-08-2016

You will get the summary of the interest calculation,Press enter to drill down until voucher level.

In the report you can see the number of days, the bill is over due, % interest & interest amount.

## Account interest in Books of account.

The calculated interest does not affect the books of account.This has to be accounted if needed. Normally when we debit a party account we issue a document called debit note.You have to create a debit note in tally and send a printout to the party.

Go to **Gateway of Tally> Accounting Voucher > Debit note ( Ctrl+ F9)**

In the debit note ,debit the party name, create a new reference , credit the Interest received account & save the screen.

Now the interest is accounted and party account debited and increased by interest amount.This is how we can do simple interest calculation in Tally ERP 9.

Thanks for so much useful information

hello in tally erp9 about interest problem in party ledger option not having an option of interest activation as well as advance parameter

thanks a ton…it helped me a lot..

hello sir, when i try to make debt note party name shown but ref no & amt not shown. what is the problem, in other company i try but it worked. Is there any configuration for this.