FUNDAMENTALS OF ACCOUNTING

F.Y.BCOM 2020-21 SEMESTER ONE

UNIT 3 CHAPTER 1 AVERAGE DUE DATE AND ACCOUNT CURRENT
SEMESTER ONE

Note: The study material is not exhaustive, these are only guidelines. The examples given are issued to save time in dictation.
Students are requested to refer the reference books,

AVERAGE DUE DATE

Meaning: Average is a single figure representing a group of figures. “Average due date is a mean date on which a
single amount or sum can be paid in lieu of several payments on different dates”. In business unit, there are large
number of transactions may occur with the same party. In such situation, if a drawer draws several bills of
exchange, for the settlement of account on a drawee payable on different dates, the drawee should make
payments on those different dates to discharge his liability. Both the parties may feel it inconvenient to make or receive
payments at different dates. As a solution, a mean date is calculated for a lump sum payment, which may result neither
in any loss of interest nor any undue advantage to any party. Thus, the date on which the settlement takes place
between the parties is known as Average/Mean due date.

The average due date technique of payment may be used in the following situations.

1. In case of cancelation of various bills of exchange due on different dates and issuance of a single bill.
2. In case of calculating interest on partners’’ drawing.
3. In case of settlement between parties that have mutual dealings (settlement of contra accounts)
4. In case of piecemeal distribution of assets during dissolution of partnership.
5. In case of settlement of accounts between a principal and an agent.

 TYPES OF PROBLEMS: the following two types of problems may arise relating to different situations.

A. When amount/sum is lent in various installments but repayment is made in one installment only.
I. In case of cancellation of various bills of exchange due on different dates and issuance of a single bill.
II. In case of calculating interest on partners’’ drawing.
III. In case of settlement between parties that have mutual dealings (settlement of contra accounts)
B. When amount /sum is lent in one installment but repayment is made in various installments.

A. When amount/sum is lent in various installments but repayment is made in one installment only.

The steps for the calculation of Average Due Date are as follows:

Step 1: Select any one of the due date as the BASE DATE. Any due date may be taken as base date but preferably
the first due date (or earliest date) as the date should be considered.
Step 2: Calculate the number of days/months (plus or minus) of each of the other due dates from the base
date.
Step 3: Multiply the amount of each payment by the respective number of days/months as calculated at step
2. The result will give the product of each payment.
Step 4: Add the amount of each payment and also add the products.

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Step 5: Divide the total of the products by the total of the amount payable. The result will give the number of
days/months which are added to (or subtracted from) the Base date.
Thus, Average Due Date: Base Date + Number of days/months.
If the due date is in fraction, round off it to the next whole number. The following format is used to
calculate the product of different transactions or payments.

Sr. Date of Due Number of days/months Amount Product

No transaction date (Base date to due date) (Rs) (No. of days/months X
Amount)

I. IN CASE OF CANCELLATION OF VARIOUS BILLS OF EXCHANGE ON DIFFERENT DATES AND ISSUANCE OF

A SINGLE BILL:

A bill of exchange is unconditional order in writing given by the drawer to the drawee to pay on demand or
at a fixed or predetermined future time, a certain sum of money to or to the order of a specified person or
to the bearer. The due date of bills of exchange is the date when he amount of the bill is payable by the
drawee. A bill of exchange, payable at a predeterminable time in future, becomes due on the expiry of the
period of the bill. The time after which the term bill is to be paid is said to be the tenure of the bill.

But it is customary to allow three days of grace to the drawee to pay the amount in the case of a term bill.
Therefore, while calculating the due date of a term bill, in its period, three more days are added. For
example, a bill is drawn 1.1.2015 for 3 months. Then the due date of the bill is 4.4.2015.

A bill of exchange payable can be: (a) a certain period after date, or (b) a certain after sight. When the bil
contains a direction to ‘pay three months after date’ three months have to be counted from the base of
drawing of the bill. But, the bill contains a direction to ‘pay after sight’ three months have to be counted
from the date of acceptance of the bill. A bill of exchange payable at sight becomes due immediately after
the bill is represented for repayment.(Example No.5)

While calculating the due date of bills of exchange, the following points should be noted.

1. When the period of the bill is stated in days, the calculation of the due date will be in days (which
include the date payment but exclude the date of transaction)
2. When the period of the bill is stated in months, the calculations will be made in terms of calendar
months ignoring the no. of days in a month. For example, is a bill is drawn on 15 th January, 2015 for 3
months, the due date of the bill is 18 th April, 2015.
3. If a due date falls on a day which is public holiday, the due date shall be preceding business day.
Further, if the preceding day is also a public holiday. It will due on the day preceding the previous day.
For e.g. If the due date of a bill is 26 th January (Republic day). It falls due on 25 th January and if 25th
January is also a public holiday, it will fall due on 24 th January (provided 24th January is not a public
holiday.

II IN CASE OF CALCULATION OF INTEREST ON DRAWING OF PARTNERS:

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 The Average Due Date technique practically, simplifies interest calculations. If the payment is made
exactly on the ADD, the drawer/creditor will not suffer any loss in respect of interest. In case, the
drawee or debtor delays the payment of lump sum amount, the drawer/creditor will lose interest for
the period of delay. In this situation, the drawee/debtor should pay interest at agreed rate for the
period of delay, that is, the difference between ADD and actual date of payment. ADD technique can be
used for calculating interest on partners’’ drawings at different dates. The following steps for the
calculation of interest should be followed.

Step1 Calculate the ADD in the usual manner.

Step2 Find out the difference between the ADD (as calculated at step 1) and the date of closing the
books of account.
Step 3 Calculate interest by applying the following formula.

a) Interest = Number of monthsXRate of Interest X Amount (if monthly basis) or

12 100
b) Interest = Number of days X Rate of Interest X Amount (if daily basis)
365(366 in leap year) 100

III. IN CASE OF SETTLEMENT BETWEEN PARTIES THAT HAVE MUTUAL DEALINGS (SETTLEMENT OF
CONTRA ACCOUNTS) :

When there are mutual dealings between en two parties, that is “X” & “Y” sell goods to each other on
different dates, the ADD technique can be applied for the settlement of accounts. The following steps for
calculating the ADD should be followed.

Receivable:
Step 1 Select the first due date as the base date.
Step 2 Calculate the number of days from the base date.
Step 3 Multiply the amounts by the number of days as calculated at step 2

Payable:
Step1 Take the same due date (as taken in receivable) as the base date
Step 2 Calculate the number of days from the base date.
Step 3 Multiply the amounts by the number of days as calculated at step 2

Now, aggregate/ add the amounts and products of receivable and payable separately. Further, find out
the balance of products column separately. Finally, use the following formula to find out the ADD.

ADD = Base Date + Balance of products (i.e. Products of receivables – products of payables)
Balance of the amounts (i.e. Receivable Amount – payable amount)

To calculate interest, if the settlement date/date of closing books of accounts is different from ADD, find
out the days to settlement date of closing books of accounts from ADD (ignoring the ADD but including the
settlement date.)

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 Calculate the interest with the following formula:

Interest = Balance of AmountX Rate of interest X (Settlement date –ADD)

100 365* (366 if leap year)

*If deviation (i.e. Settlement date – ADD) is in months, the denominator will be 12.

B. When Amount/Sum Is Lent In One Installment But Repayment Is Made In Various Installments.

The method of amount/sum is lent in one installment and repayable in many installments is not materially different
from the method discussed earlier. Under this method, the installments can be of equal or unequal amount. The
concept of average due date (ADD) can be used to find out interest under this situation.

The following steps are followed:-

Step1. Calculate the no. of days/months from the date of lending/base date to the date of each repayment made.
Calculate the product of repayment by multiplying the no. of days/months with amount of repayment.
Step 2.Ascertain the sum of days/months as calculated at step 1.
Step 3. Divide the sum so ascertained at step 2 by the number of installments paid.
Step 4.The results will be the no. of days/months by which the average due date falls from the date of taking such
loans. The same date will be calculated with the help of the following formula.

Average Due Date =

Date of taking loan + Sum of days/months from the date of lending to date of
Repayment of each Installment
Number of installments.

Step 5. Calculate interest for the period from the lending date up to the ADD as follows.

Interest = Amount of Loan x Rate of Interest x (ADD - Lending Date)

100 365* (366 if leap year)

*If Deviations (i.e. ADD - Lending Date) are in months, the denominator will be 12.

ACCOUNT CURRENT:

An Account Current is a statement of mutual transactions, between two parties for a given period of time, and
includes interest payable to or receivable from the other party at an agreed rate. It takes the form of an account
with some additional columns for-due date, number of days, interest or interest product, and the like. All
transactions are recorded according to date. It is, in fact, a copy of the Debtors’ Ledger Account in the books of the
Creditor. Account Current is prepared generally in the following situations.

1. When frequent transactions regularly take place between two parties (i.e. creditor and debtor).
2. When goods are sent by the consignor to the consignee for sale.

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3. When two or more persons are in joint venture and each co-venturer is entitled to interest on their investment
and no separate set of books is maintained for the joint venture.
4. When the head office sent the goods to its branch.
5. When frequent transactions take place between a banker and his customers.

An Account Current Has Two Parties: - one who renders the account and the other to whom the account is
rendered. If X renders the account to Y, then in the books of X, the heading of the account is written as ‘Y in
Account Current with X'.

PREPARATION OF ACCOUNT CURRENT:

Under The Forward Method.
a) Preparation of Account Current by individual transaction method.
b) Preparation of Account Current by balance of products method
c) Red-Ink Interest.
a) Preparation of Account Current by individual transaction method.

Under this method, the number of days for Interest is calculated from the due date of each transaction to the date
of rendering the account. The following steps are followed for preparing an account current.

Step 1. Write down the heading of the account. The name of the party rendering the account will appear last and
to whom it is rendered will appear first. For example, if A renders account to B, then in the books of A, the
heading of the account is 'B in Account Current with A.

Step 2. Rule the account in the ledger as follows.

B In Account Current With A
Dr. Cr.
Date Particulars Due Days Amount Interest Date Particulars Due Days Amount Interest
Date (Rs.) (Rs.) Date (Rs.) (Rs.)

Step 3.Record each transaction in the appropriate side of account current in the usual manner as, per the rules of
debit-and credit (being used in traditional T form account), after determining whether the person to
whom the account is rendered, is to be debited or credited.
Step 4. Insert the due date of each transaction.
Step 5.Calculate the number of days from the due date of each transaction to the date of rendering the account
and insert it in the 'Days' column.
Step 6.Calculate the interest on individual amount of transactions with the help of interest table or manually with
the help of the following formula and insert it in the Interest' column.

Interest = Amount x Rate of Interest x Number of Days

100 365* (366 if leap year)

Step 7. Find out the balance of the interest column and insert it in the 'Amount' column of the greater interest
column side.
Step 8. Lastly, bring down the balance of the 'Amount' column.

Students Should Note The Following Points.

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1. While counting the number of days, the date of the “due date" is ignored and the date upto which the
accounting is prepared is included.
2. While counting the number of days for opening balances, the opening date as well as the date upto which the
account is prepared, is included.
3. If nothing has been mentioned, the date of transaction should be taken as the due date.

b) Preparation of Account Current by balance of products method

The procedure of preparing the account current under this method is almost similar to the above discussed
method. In this method, the interest column (of the previous method) is replaced by the products column.
Interest is calculated on the balance (either debit or credit) of the products for one day. Generally, the
following steps are followed.

Step 1 Write down the heading of the account just as in the previous method.
Step 2 Rule the account in the ledger as follows.

B In Account Current With A

Dr. Cr.
Date Particulars Due Days Amount Product Date Particulars Due Days Amount Product
Date (Rs.) (Rs.) Date (Rs.) (Rs.)

Step 3.Record each transaction in the appropriate side in the usual manner.
Step 4. Insert the due date of each transaction.
Step 5.Calculate the number of days from the due date of each transaction to the date of rendering the account
and insert it in the 'Days' column.
Step 6. Calculate the product of each transaction by multiplying the days with amount and insert it in the
'Products' column.
Step 7.Find out the balance (either debit or credit) of products of the two sides.
Step 8.Calculate the interest with the help of the formula given below.

Interest= Balance of product x 1 x Rate of Interest

365/366 100
Step 9.Insert this interest in the 'Amount' column on the side other than that on which the balance of products
appears.
Step 10. Lastly, bring down the balance of the 'Amount' column.

c) Red-Ink Interest.

If the due date of bills falls after the date of closing an account, generally no interest is allowed for it during
current period of the account. However, interest from the date of closing to such due date is written in ‘RED-INK’
simply to show that the interest belongs to the opposite side of Account Current. This interest is called Red-Ink-
Interest/negative interest. Moreover, no. of days and the product of such bill are written as (-) negative and in
ordinary ink to the side (credit side if Bills Receivable due) on which the bills/transactions are entered The debit
products written as negative are added to the credit products and the credit products written as negative are
added to the debit products while calculating the balance of products. Further, the procedure of preparing an
account current, as followed in the balance of products method is used for the preparation of an account
current. Red-Ink Interest is applicable to the forward method only.

Students are advisable to follow this approach as it is easier to prepare an account current in this manner.
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EXAMPLES OF AVERAGE DUE DATE

A (I) IN CASE OF CANCELLATION OF VARIOUS BILLS OF EXCHANGE ON DIFFERENT DATES AND ISSUANCE OF A
SINGLE BILL:

1. Raj sold goods to Rit as detailed below:

Date of Invoice Value of Goods Sold

Rs.
5-5-2020 4,000
12-5-2020 2,500
19-5-2020 3,500
26-5-2020 3,250
1-6-2020 2,000
3-6-2020 2,000

The payments were agreed to be made by bills payable 90 days from the respective dates of the invoice.
However, Rit wanted to arrange for payment of all the bills to be made on a single date.
Calculate the date on which such a payment could be made without loss of interest to either party.

Ex: 1 Solution

The date referred to in the question is the average due date, calculate as below with August 6,2020 as the base
date.

Date of Invoice Value of the Due date No of days Products

goods from the
starting point
05.05. 2020 4,000 06.08.2020 NIL NIL
12.05. 2020 2,500 13-08-2020 7 17,500
19.05. 2020 3,500 20-08-2020 14 49,000
26.05. 2020 3,250 27-08-2020 21 68,250
01.06. 2020 2,000 02-09-2020 27 54,000
03.06. 2020 2,000 04-09-2020 29 58,000
17,250 2,46,750
No. of days of the average due date from the starting point 2,46,750= 14 days
17,250

Due date for the payment is, therefore, 6th August, 2020 plus 14 days or 20th August, 2020
Date of drawing bill Period May June July August September Due date
(Days) with days of
grace
05-05-2020 90 26 30 31 03 - 06-08-2020
12-05-2020 90 19 30 31 10 - 13-08-2020
19-05-2020 90 12 30 31 17 - 20-08-2020
26-05-2020 90 05 30 31 24 - 27-08-2020
01-06-2020 90 - 29 31 30 - 2-09-2020
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 03-06-2020 90 - 27 31 31 01 04-09-2020

2. A drew upon B several Bills of Exchange due for payment on different due dates as under:
Date Amount (Rs.) Tenure (Rs.)
2-10-2019 1600 3 Months
20-10-2019 1200 2 Months
10-11-2019 1,200 3 Months
27-11-2019 850 3 Months
8-12-2019 600 1 Months
16-12-2019 1,500 2 Months

Find out the Average Due Date on which payment may be made in one single amount.

Ex: 2 Solution
COMPUTATION OF AVERAGE DUE DATE
(Base or Zero Date: 23.12.2019)

Date Due Date No of days Amount Product

from the base
date
2-10-2019 05-01-2020 13=8+5 1600 20,800
20-10-2019 23-12-2019 0 1200 0
10-11-2019 13-02-2020 52=8+31+13 1,200 62,400
27-11-2019 01-03-2020 69=8+31+29+1 850 58,650
08-12-2019 11-01-2020 19=8+11 600 11,400
16-12-2019 19-02-2020 58=8+31+19 1,500 87,000
6,950 2,40,250

Total product = 2,40,250= 34.57 = 35 days

Total amount 6,950
Hence, Average Due Date = 35 days from base date of 23.12.2019 = 27th January, 2020
Note: 3 days of grace has been considered in each case to ascertain the due date

3. A trader having accepted the following several bills falling due on different dates, now desires to have these bills
cancelled and to accept a new bill for the whole amount payable on the average due date:
Serial No. Date of Bill Amount (Rs.) Tenure of the bill
1. 1st March, 2020 800 2 Months
2. 10th March, 2020 600 3 Months
3. 5th April, 2020 400 2 Months
4. 20th April, 2020 750 1 Months
5. 10th May, 2020 1000 2 Months

You are required to find the said average due date.

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 Ex: 3 Solution COMPUTATION OF AVERAGE DUE DATE

Sr. Date of bill Due date of Amount No of days Product

No maturity from base
date (4th
May)
1 01-03-2020 04-05-2020 800 0 0
2 10-03-2020 13-06-2020 600 40 24,000
3 05-04-2020 08-06-2020 400 35 14,000
4 20-04-2020 23-05-2020 750 19 14,250
5 10-05-2020 13-07-2020 1000 70=27+30+13 70,000
3,550 1,22,250
ADD = 1,22,250/3,550 i.e. 34 days after the assumed due date, 4th May, 2020, the new bill
Should be for Rs. 3,550 payable on June 7, 2020.

4. X owes Y the following sums of money due on the dates stated:

Rs. 800 due on 5th January, 2020
Rs. 400 due on 20th January, 2020
Rs. 1600 due on 4th February, 2020
Rs. 200 due on 26th February, 2020
Rs. 100 due on 10th March, 2020

Calculate such a date when payment may be made by X in one installment resulting in no loss of interest to either
party.
Ex:4 Solution
CALCULATION OF AVERAGE DUE DATE
Base date—5th January 2020 (date of first transaction)
Due Date Amount Days from the date Product of amount and
of base date days ADD =
05-01- 05-01-2020 800 0 0 2020+
70,900 20-01-2020 400 15 6,000
04-02-2020 1600 30 48,000
26-02-2020 200 52 10,400 3,100
10-03-2020 100 65 6,500 =
05-01- Total 3100 70,900 2020 + 23
days
= 28-01-2020
If payment of Rs. 3,100 (total debt) is made in one installment on 28th January 2020 then there is no loss of
interest to either party.

5. For goods sold, Nair draws the following bills on Roy who accepts the same as per terms.

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 Amount of the bills Date of Drawing Date of Acceptance Tenure
8000 06-01-2020 09-01-2020 3 months after date
9000 15-02-2020 18-02-2020 61 days after date
8000 21-02-2020 21-02-2020 2 months after date
15000 14-03-2020 17-03-2020 30 days after sight

On 18th March,2020 , it is agreed that the above bills will be withdrawn and the acceptor will pay the whole amount
in one lumpsum by a cheque, 15 days ahead of average due date, and for this a rebate of Rs.1000/-will be
allowed.
Calculate the average due date and the amount and the date of the cheque.

Solution 5:
Calculation of Average Due Date
Date of bill Due date of Amount No of days Product
maturity from base date
06-01-2020 09-04-2020 8000 0 0
15-02-2020 19-04-2020 9000 10 90000
21-02-2020 24-04-2020 8000 15 120000
14-03-2020 19-04-2020 15000 10 150000
Total - 40000 - 360000

(a) Average due date = Base Date + 360000 Days = 9th April + 9 days = 18th April, 2020
40000

(b) Amount of cheque = Rs. 40,000 – Rs. 1000 = Rs. 39,000/-

(c) Due date of the cheque = 18th April, 2020 – 15 days = 3rd April, 2020

A (II) IN CASE OF CALCULATION OF INTEREST ON DRAWING OF PARTNERS:

6. Sunil is a partner in Sunil &Sharad Co. His drawings from the business during the year 2020 are as follows:

Months Rs. Months Rs.

Jan. 31 250 Jul.31 80
Feb. 29 200 Aug.31 120
Mar. 31 360 Sept. 30 130
Apr. 30 100 Oct. 31 200
May. 31 240 Nov. 30 190
June. 30 100 Dec. 31 320
You are required to calculate the Average Due Date and the amount of interest @ 15% p.a. payable by Sunil for
his transactions, taking
(a) Jan. 1 as the basic date
(b) Dec. 31 as the basic date

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 Ex : 6 Solution

Month Dec 31 being used as basic date Jan 1 being used as basic date
2014 Amount Months Product Amount Months Product
before 31st after 1st
Dec Jan
Jan 31 250 11 2750 250 1 250
Feb 29 200 10 2000 200 2 400
Mar 31 360 9 3240 360 3 1080
Apr 30 100 8 800 100 4 400
May 31 240 7 1680 240 5 1200
June 30 100 6 600 100 6 600
July 31 80 5 400 80 7 560
Aug 31 120 4 480 120 8 960
Sept 30 130 3 390 130 9 1170
Oct 31 200 2 400 200 10 2000
Nov 30 190 1 190 190 11 2090
Dec 31 320 0 0 320 12 3840
2,290 12,930 2,290 14,550

Average Due Date when December 31 st is taken as the basic date = 12,930/2,290=6 months (approx.) prior to
December, the Average Due Date is 30th June.

Average Due Date when January 1 st is taken as the basic date = 14,550/2,290 = 6 months (approx.) subsequent
January 1st. the Average Due Date is 30 th june
Sunil had paid the amount of Rs 2,290 to the firm on the Average Due Date, i.e. 31st July, there would into loss of
interest to either party. Since the accounts are being settled not on 31st June but on 31 st December

Sunil is liable to pay to the firm interest for 6 months. The amount comes to 2290x 15 x6 =Rs171.75 = Rs.172/-
100 X12
A (III) IN CASE OF SETTLEMENT BETWEEN PARTIES THAT HAVE MUTUAL DEALINGS (SETTLEMENT OF CONTRA
ACCOUNTS)

7.Mr. A had the following bills receivable and bills payable against Mr. B. Calculate the average due date when the
payment can be made or received without any loss of interest to either party.

Bills Receivables Bills Payables

Date Amount(Rs.) Months Date Amount(Rs.) Months
1/7/2020 4,000 3 28/6/2020 3,000 2
5/7/2020 2,500 3 2/7/2020 2,000 3
9/7/2020 5,000 1 10/7/2020 4,000 2
12/7/2020 12,000 2 13/7/2020 10,000 2
20/7/2020 14,000 3 27/7/2020 12,000 1

Solution: 7

 Bills receivables : Base date :- 12-08-2020

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 Date Due date + 3 days No of days from Amount Products
grace base date
01-07-2020 04-10-2020 53 4,000 2,12,000
05-07-2020 08-10-2020 57 2,500 1,42,500
09-07-2020 12-08-2020 0 5,000 0
12-07-2020 15-09-2020 34 12,000 4,08,000
20-07-2020 23-10-2020 72 14,000 10,08,000
37,500 17,70,500

 Bills Payables : Base date 12-08-2020

Date Due date+ 3 days No of days from Amount Products

grace base date
28-06-2020 31-08-2020 19 3,000 57000
02-07-2020 05-10-2020 54 2,000 1,08,000
10-07-2020 13-09-2020 32 4,000 1,28,000
13-07-2020 16-09-2020 35 10,000 3,50,000
27-07-2020 30-08-2020 18 12,000 2,16,000
31,000 8,59,000
ADD = Base date + Balance of products / balance amount
= 12-08-2020 + [1770500-859000] / [37500-31000]
= 12-08-2020 + 911,500 / 6500
= 12-08-2020 + 140 days
= 30-12-2020

B. WHERE AMOUNT LENT IN ONE INSTALLMENT

8. Rs. 50,000 lent by VIrat & Co. to Raj & Sons on 1st January, 2016, is repayable in 5 equal annual installments
commencing from 1st January, 2018. Calculate average due date and interest at 15% p.a.

Solution:8

ADD = Date of loan + Sum of the number of years from the date of loan to the date of repayment of
Each instalment__________________________________________________________________________________
Number of installments
1st installment is paid after 2 years from the date of loan
2nd installment is paid after 3 years from the date of loan
3rd installment is paid after 4 years from the date of loan
4th installment is paid after 5 years from the date of loan
5th installment is paid after 6 years from the date of loan
This, ADD = Date of loan + 2+3+4+5+6
5
= 01st Jan 2016 + 20/5 = 01-01-2016+ 4 years
= 01-01-2020
Interest.If loan were given on 1st Jan. 2020, no interest would have been charged but actually
It was given on 1st Jan., 2016. Therefore, interest for the period from 1st Jan., 2016 to 1st Jan.,
2020, le. For 4 years will be charged, which is—
15 x 4 x Rs. 50,000 = Rs. 30,000
100
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ACCOUNT CURRENT

INDIVIDUAL TRANSACTION METHOD

9. The following are a series of transactions between X and Y for the three months ending on 31st March 2020.
Calculate the amount of interest to be payable by one party to the other @ 10% p.a.(Round of interest to the
nearest number)

Months Books of A Rs.

Jan. 1 Opening balance (Dr) 15,000
Jan. 10 Sold goods to Y 20,000
Jan. 15 Cash received, from Y 20,000
Feb. 15 Sold goods to Y 30,000
March 1 Cash received from Y 25,000

Solution: 9 Solution Y in account current with X

Date Particulars Rs Date Particulars Rs

Jan1 To balance b/d 15,000 Jan15 By cash 20,000
Jan10 To sales 20,000 March1 By cash 25,000
Feb15 To sales 30,000 March 31 By balance c/d 20,566
March 31 To interest (see 566
Working note)
65,566 65,566
Working Note:

Computation of Interest

Debit Items Rs Credit items Rs

1. 15,000 X (91/366) X (10/100) 373 1.20,000X (76/366) X (10/100) 415
2. 20,000 X (81/366) X (10/100) 443 2. 25,000 X (30/366) X (10/100) 204
3. 30,000 X (45/366) X (10/100) 369

Total Interest to be charged to Y = (373+443+369) - (415+204) =Rs 566

10. From the following particulars, prepare the account current by individual transaction method to rendered by
Mr. Amit to Mr.Ritesh as on 31st August, 2020. The interest must be calculated @10%.

2020 Particulars (Rs) 2020 Particulars (Rs)

June10 Goods sent to 2540 July 5 Goods sent to 1800
Mr.Ritesh Mr. Ritesh
June 14 Cash received 1500 Aug 8 Cash received 2500
from Ritesh from Ritesh
June 15 Goods sent to 1600
Ritesh

Solution: 10

Ritesh in account current with Amit

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 Date Particulars Due Days Interes Rs. Date Particulars Due Days Interest Rs.
2020 date t 2020 date
June To Sales June10 82 56.91 2540 June14 By cash June1 78 31.97 1500
10 A/c A/c 4
June To Sales June 77 33.66 1600 Aug 8 By cash Aug 8 23 15.71 2500
15 A/c 15 A/c
July To Sales July 5 57 28.03 1800 Aug 31 By - 70.92
5 A/c Balance of
interest
(as per
contra)
Aug To 70.92 Aug 31 By 2010.92
31 interest Balance
A/c (As per c/d
contra )
118.60 6010.92 118.60 6010.92

Note Holiday intervening in the period: 15th August 2020

BALANCE OF PRODUCT METHOD

11. Rita had the following transactions with Rahul:
Jan. 1, 2020 Opening balance due to Rita Rs.1500
Feb. 4, 2020 Sold goods to Rahul Rs.2500
March 15,2020 Purchased goods from Rahul Rs.2000
April 20, 2020 Received acceptance from Rahul for the bill Rs.1500
dated April 15, payable one month after date
May 15, 2020 Paid cash to Rahul Rs.2500
Make up an account current to be rendered by Rita to Rahul on 30th June, 2020, calculating interest at 10% per
annum.

Solution : 11 Rahul in Account Current with Rita

(Interest to 30thjune 2020 @ 10% p.a)
Date Particulars Amt Days Product Date Particulars Amount Days Product
2020 Rs. 2020
Jan1 To balance b/d 1500 182 273000 March 15 By 2000 107 214000
Purchases
Feb 4 To sales 2500 147 367500 April 20 By B/R 1500 43 64500
May To cash 2500 46 115000 June 30 By balance 477000
15 of products
June To interest on Rs. 130.33 June 30 By balance 3130.33
30 477000 for 1 day c/d
@ 10% p.ai.e
477000 X 10
366 X 100
6630.33 755500 6630.33 755500
July 1 By balance b/d 3130.33

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RED INK INTEREST

12. From the following transactions in the books of Adwait, prepare an account current to be sent by Adwait to
Sohan from the quarter 31st March, charging and allowing interest at 15% p.a.

Jan. 1 Balance in Sohan’s account (Dr.) Rs.5,000

Jan. 15 Sold Goods to Sohan Rs. 8,000
Feb. 11 Cash Received from Sohan Rs. 6,000
Feb. 18 Sold Goods to Sohan Rs. 4,000
Feb 19 Received a bill of exchange from Sohan due two months after date Rs.7000

Solution : 12
Sohan in Account current with Adwait
(Interest to 31th March @ 15%)
Date Particulars Amount Days Product Date Particulars Amount Days Product
Jan 1 To balance 5,000 91 Feb 11 By Bank 6,000 49
b/d 455000 294000
Jan 15 To sales 8,000 76 Feb By B/R 7,000 (22)
19 due on
608000 April 22 (154000)
Feb 18 To Sales 4,000 42 Mar By
31 balance of
168000 products 1091000
Mar To Interest 447 Mar By 4,447
31 1091000 X 15 31 balance
100 X 366 c/d
17,447 1231000 17,447 1231000

13. Show account current rendered by Kishori to Radhey for the half-year to 30th June, 2020 Following are the
transactions:
On 1st January, 2020 Radhey owes Kishori. 1000
On 1st February, 2020 Radhey remits cash Rs. 400
On 15th March, 2020 Kishori sold goods to Radhey worth
Rs. 700 (due on 1st May, 2014.)
On 31st March, 2020 Radhey sends bill in payment Rs. 800
(due on 1st October, 2020. including
days of grace)
On 30th May, 2020 Radhey purchased goods worth Rs. 900 (due on 31st August, 2020)
Interest is to be calculated at 5 per cent per annum.

Solution : 13 Radhey in Account current with Kishori

(Interest to 30 thjune 2020 @5%)
Due Transaction Amount Months Produc Due Transaction Amount Product
Date to 30th t date Month
June s to
30th
June
15
 2020 Rs. Rs 2020 Rs
Jan To balance 1000 6 6000 Feb By cash 400 5 2000
1 1
May To sales 700 2 1400 Oct By B/R 800 (-3) (-2400)
1 1
Aug To sales 900 (-2) (-1800) June By Balance 1425
31 30 c/f
June To interest 25 By bal of 6000
30 Product 5600-2000-(-2400)
5600-2000+2400
2625 5600 2625 5600
July To balance 1425
1

Interest is to be calculated on Rs. 6000[i.e., 5600-(-400)] at 5% p.a. for one month and
Is to be put in the amount column on the debit side of Radhey's account.
* Interest has been calculated by taking the year of 366 days.

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