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 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 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

Activation of interest calculation

Interest calculation example simple mode in Tally.ERP 9

On 01-05-2016 Sold goods to CMC Ltd (Sundry Debtor) for Rs 50000 for a credit period of 30 days. Agreed an interest of 20%/ year on delayed payment. CMC Made payment on 30-06-2016. Calculate interest as agreed and account the same in Tally.

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.

Activate interest calculation and credit period in ledger creation screen

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

Interest calculation parameters

  • 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.

Interest parameters for simple interest

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 Invoice 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.

override interest parameters for each transaction

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

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.

Interest calculation report

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.

the debit note for interest accounting

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.

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