INTEREST ACCOUNTS IN ACCOUNTS-CURRENT AND BALANCE-SHEETS CALCULATED BY VARIOUS METHODS.

The Interest upon Accounts-Current or Running Accounts, or in Balance-Sheets, is reckoned in various ways, viz. :—

1. With respect to the Principals, or the amounts on which the Interest is calculated: in some accounts the Interest is reckoned upon the balances resulting from each operation or variation in the account; but it is the more usual practice to reckon it upon each sum, separately, on each side of the account, placing it in separate columns, and to take the balance of these separate results.

2 and 3. With respect to the time; in most mercantile accounts, it is reckoned in days only, but sometimes it is reckoned in months and days. (See Example 2, on page 9.)

4 and 5. When the Interest is reckoned upon the balances, the time is carried forward from one day of taking the balance to the next; but when the Interest is calculated upon the separate debits and credits, the time is commonly reckoned backwards from the day of settling the balance (that is the date of the Balance

Sheet or Account-Current) to each of the days in the account; and, in this case, the Interest on the sums which are due beyond the day of settlement is added to the opposite side of the account, which has the effect of discounting such sums, and rendering them due on the day of the general settlement. Instead of reckoning the Interest backwards, another method of settling accounts reckons the interest forwards, from the previous date of settlement of account, and adjusts the balance accordingly. (See Example 3, on page 10.)

6. In accounts in which the Interest is reckoned in days; the statements are made out either with the actual amount of the Interest on each sum, or with what are technically called "Interest Numbers,” formed from the product of the Principals multiplied by the number of the days, and the balance of the Interest is calculated from the balance of these numbers.

The shillings and pence of the Principal, if over 10s., are generally reckoned as £1 in creating the Interest Numbers.

EXAMPLE 1: First Method. On the 30th of June, 1887, there was due to me, upon an account, a balance of £1,426 16s. 4d.; since which time I have received and paid the following sums, viz.: 10th July, I received £1,000; 18th July, I paid £124 7s. 6d.; 22nd Aug., I received £600; 26th Sept., I paid £200; 18th Oct., I received £400; 24th Nov., I paid £500; 1st Dec., I received £450; and on 11th Dec. I paid £500. It is required to find the balance of this account, Dr. or Cr., with Interest at 4 %, made up to 31st Dec., 1887.

Dr. Balance of Account, Dec. 31, 1887, £305 Os. 10d. In this mode of making out the account a balance is struck at the time of each receipt and payment; then the Interest is calculated upon the preceding amount for the time between the two dates, and the Interest is entered in the proper column according as the balance is Dr. or Cr. (that is, for or against the party who makes out the account). To make the Interest totals. equal an amount must be added to the smaller sum. That amount is the Balance of Interest.

Dr.

EXAMPLE 2.-(Second and Fourth Methods combined; with Interest Numbers of

Sixth Method.)

The preceding Account made out in Dr. and Cr. form.

Messrs. Ward & Co., Liverpool, in Account-Current with James Pearson, London.

500 0 0

10,000

Balance of Numbers*

3 17 0* Interest at 4 per cent.

305 0 10

Balance of Account.

2,755 0 10

330,852

2,755 0 10

330,852

EXAMPLE 3.-(Second and Fourth Methods combined; with Interest Numbers of

Sixth Method.)

* For the explanation of these transferred numbers, and general remarks on this account, see next page.