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TALLY TUTORIAL

Interest is a legitimate return on money invested and chargeable in the business world on loans and also on delayed payments .

Interest figures are typically desired in the following situations:

• On outstanding balance amounts
• On outstanding bills/invoices/transactions (Receivable and payable)

Tally Walk-through to set Up interest calculations

You first need to activate the feature for the Company and then activate it for each specific ledger account for which interest is to be calculated.

You should now be at the Gateway of Tally.

Select F11: Company Features.  Tab down to the Accounting Features and to the following options answer as follows:-

• Activate Interest Calculations? Set it to Yes.
• Use Advanced Parameters? Set it to No.
• Accept the changes and return to Gateway of Tally

You will learn about Advanced Parameters later.

Simple Mode - Where Advanced Parameters are not applicable

Interest calculations on outstanding balances

interest calculation on outstanding balances is allowed for any ledger account.  You simply specify the interest rate, and style of calculation.  Nothing is required to be done for interest during voucher entry.

You will have to alter existing ledger accounts to permit interest calculations on them.  The same operation will apply when creating a new ledger account

Activate and specify interest calculations in Current Account of JC Computer Supplies.

• Select Accounts Info ->Ledgers -> Alter ->Current Account
• Tab (or press <Enter>) down to the option Activate Interest Calculation?
• Set it to Yes.
• Now you have to set the Interest Parameters - the basis on which interest will be calculated for this ledger account.
• Only two pieces of information have to be given:-
  • Rate - give a rate say 15%  
  • Style - this the basis on which the rate is applied.  There are 4 options

    *	30-day month
    *	365-day Year
    *	Calendar Month
    *	Calendar Year

• Select 365-day Year.
• Accept the screen.

You are now ready to view the amount of interest that could be paid or charged by the bank on outstanding balances.

Book Entries and adjustment of interest

You have seen that interest is being calculated on JC Computer Supplies bank accounts but these have not been brought into books! They simply give you the interest implications. You must book them now.

How to enter the calculated interest amounts?

You must use Debit Notes and Credit Notes with Voucher Classes.

You will use Debit notes for Interest receivable and Credit Notes for Interest payable.

Interest is calculated on Simple or Compound basis and separate classes should be used for them.

Tally Walk-through to set-up voucher Classes for interest entries

You will set up classes for Debit Notes now.

• Alter the Voucher Type Debit Note.

  • Gateway of Tally -> Accounts Info->Voucher Types Alter ->Debit Note.  

• Tab down to the field Class.  

• Simply type the name of the Class.  Type Simple Interest.

• In the Class screen that comes up, set the other options as above. You are taken back to the Debit Note Voucher Type Alteration screen.

• Type Compound Interest for the second class.

• In the Class screen set yes to both the questions Use Class for Interest Accounting and Amounts to be treated as Compound Interest.

• Accept the voucher Type and return to the Gateway of Tally

Entries using voucher classes

(do not attempt making entries now. You will do it in the walk through that follows)

• To account for interest accrued and owing to JC Computer supplies

  • Use Debit Note and select the appropriate class

  • Debit Current Account (or the Debtor). The amount of interest comes up automatically. Accept it.

  • Credit Interest Accrued account, which is an income account.

  • This has the effect of increasing the current account balance and is absolutely right for compound interest calculations. Further interest would be calculated on the increased amount.

  • However, that is not right for simple interest as interest on interest is not supposed to accrue.  Hence, make another entry, transferring the interest component to Interest Receivable and crediting the Current account or Debtor account. The net effect will be :-
    Dr    Interest Receivable Account   (asset account)  
    Cr    Interest Accrued Account      (income account).

• To account for interest due and payable by JC Computer Supplies

  • Use Credit Note and select the appropriate class  

  • Credit Mutual Loan Account (or the Creditor).  The amount of interest comes up automatically.  Accept it.

  • Debit Interest Due account, which is an expense account.

  • This has the effect of increasing the Loan account balance and is absolutely right for compound interest calculations. Further interest would be calculated on the increased amount.

  • However, that is not right for simple interest as interest on interest is not supposed to accrue.  Hence, make another entry, transferring the interest component to Interest Payable and reducing the balance in the Loan account.  The net effect will be :-

    Cr    Interest Payable Account   (liability account)  
    Cr    Interest Due Account         (expense account).

Tally walk-through for Voucher Entry for booking Interest on balances

Compound Interest voucher entry

1. Go to Voucher Entry

2. Date 30-6-98

3. Select F7:Journal -> Debit Note -> Class - Compound Interest

4. Debit   Current Account   Amount (the amount is automatically filled up with the calculated interest) 946.86    

5. Credit       Interest Accrued    946.86

6. Narration: Interest accrued for the period 1-5-98 to 29-6-98 on balances

7. Accept the voucher.

And nothing needs to be done!  The Bank Account has been increased by the amount of interest due and the Income account of Interest Accrued also credited.

Simple Interest voucher entry

You will use the Simple Interest Voucher class and make the first entry as above.  However, the above entry has the effect of increasing the Current Account with the amount due (compound effect). since simple interest does not calculate interest on interest amounts, you must make a journal entry to reverse the interest.

Interest for the subsequent period will be calculated by Tally on the balance after the adjustment entry.

You have to necessary go this route to take advantage of the auto filling of the interest amount which can appear only when we use the Bank Ltd account in Debit Note in the first place.

The additional entry that is required will be as follows.  Do not make this entry.  It is for information only.

Select F7:Journal Class Not Applicable.  Use a normal Journal voucher for this entry

• Debit      Interest Receivable (a current asset account) 946.86

• Credit     Current Account                                                  946.86

When interest is calculated for the following periods, the 946.86 will not be included as it has been reversed.

Interest Calculations on invoices

You can calculate interest on each invoice for the period it is outstanding wholly or partly. Transaction by transaction or bill-by-bill interest calculation is permitted for 'Party' accounts like accounts falling under the groups Sundry Debtors and Sundry Creditors.  Obviously, bill-wise details should be active for the company and the party.

Tally walk-through for interest calculation transaction by transaction (bill-by-bill)

From the Gateway of Tally->Accounts Info -> Ledgers

1. Alter a customer account, First Independent Computers
2. Set Yes to Activate Interest Calculation.
3. The Interest Parameters now have three lines to answer.
4. Calculate Interest Transaction-by-transaction - Set it to Yes
5. Over-ride Parameters for each transaction - Set it to No. If set to No, you are not allowed to change interest parameters in voucher/invoice entry.  If set to Yes, you can change the interest parameters during entry.
6. Give Rate 1% per 30-Day Month.
7. Accept the change and return to Gateway of Tally.

Report on Interest Calculated on outstanding transactions/bills Walk-through

From the Gateway of Tally, Display ->Statements of Accounts -> Interest Calculations -> Ledger -> First independent Computers

The report is similar to the Bill-wise Outstandings Statement. The last column gives the interest amount on the transaction.  Press Detailed to see the calculation.

Advanced Mode

In this section, you will be shown the use of advanced mode.  Carry out the instructions where told.

Set 'Use Advanced Parameters' to Yes in F11:Company Features.

Advanced Parameters - Interest Calculations on outstanding balances

Alter the ledger account Current Account and tab down to Interest calculation.  The following extra options now become available:

*      You can now have multiple rates of interest.
*      Choice of balances - All Balances, Credit Balances only, Debit Balances only .
*      Applicability period - when is the interest applicable from and to which date.  
*      Choice of methods for Rounding off of interest amounts.

A brief explanation on each is called for:

• Balances : Interest can be calculated on all outstanding balances whether debit or credit.  You would like to select only credit balances in case of accounts like Bank accounts if you want to know the interest that the bank might charge on overdrawn balances.

• Applicable from : the date from which the rate is applicable to a specific date. If left blank then it is up to the last date.

• Rounding off : Whether the amount is to be rounded off normally or upward or downward.  You need to give the rounded to    amount.  E.g. round off upwards to the nearest 10.

The advanced parameters are particularly useful where interest rates change from time to time.  

Advanced Parameters - interest calculation transaction by transaction

1. Alter the ledger account of Bangalore Civic Authority and tab down to Interest CALCULATIONS.  
2. Activate Interest on Bill-by-bill.

The following extra options now become available:

• You can now have multiple rates of interest. 

• You can override advanced parameters during voucher entry.  Hence, each entry could have different parameters. 

• Choice of balances - All Balances, Credit Balances only, Debit Balances only. 

• Applicability - This actually applies to the viewing of the statement and not the levy of interest.

• Calculate from - You can decide Whether interest is to be levied from the Due Date or from the Effective Date of the transaction (or the voucher date if effective date is not activated) or even date ranges specified during voucher entry.  

• Choice of methods for Rounding off Of interest amounts.

A look at 'Calculate From Dates Specified during Voucher Entry

You have set up the Interest Parameters for Bangalore Civic Authority to calculate on Dates specified during Voucher Entry.
We will take one invoice and put in the interest information.  
Alter the invoice dated 19-1-99 for 15,00,000 Project Sales with 2 New Ref.s.
Set the interest parameters to be 15% for Due date to 28-2-99 then 18% thereafter.

Your voucher screen should be as follows:

Interest parameters set during invoicing

Report on Interest Calculated on outstanding transactions/bills

You will get a report by Display -> Statements of Accounts -> Interest Calculations -> Ledger -> Bangalore Civic Authority 

Press detailed to see the calculation and the period. Previous transactions are calculated from effective date of Transaction as a default. Date Specified During Entry has not been used.

Note that part monies received have been accounted for and interest calculated on the balance.