METHOD OF PREPARATION OF ACCOUNT CURRENT

METHOD OF PREPARATION OF ACCOUNT CURRENT:

1) With the help of interest table.

1)       With the help of interest table.

2)       By means of products;


(1)           With the help of interest table:-


Under this method all the transactions are arranged in the form of  an  account. Two additional columns are made on both the sides of such an account.

Ø  One column is meant to indicate the number of days counted from the due date of each transaction to the date of rendering the account.

Ø  Other column is meant for writing interest.

The interest column of both the sides are totalled up and balance is drawn.

Note:-  If no specific date is mentioned as the date, on which payment is due, the date of the transactions is presumed to be the due date.

(2)    By means of products:—


Under this method, interest columns are replaced by "Product" columns. Product in this case is calculated by multiplying the amount with the number of days for which it has been outstanding. Products of the debit side and the product of the credit side are totaled separately. Interest is calculated for one day on the difference of the two side totals and is entered on the bigger side. There are two methods of calculating interest:-

(a)     Forward method

(b)     Backward method (Epoque method)

 

RED-INK INTEREST:- In case the due date of a bill falls after the date of closing the account, then no interest is allowed for that period. However, interest from the date of closing to such due date is written in “Red-Ink" in the appropriate side of the ' Account current'. This interest is called Red- Ink interest. This Red Ink interest is treated as negative interest

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