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CHAPTER – 10

ACCOUNT CURRENT

TABLE OF CONTENTS
I. The Concept II. Practical Problems

1. THE CONCEPT

PRELIMINARY:
An Account Current is a periodical statement of account rendered by one party to another along with
additional columns to facilitate interest calculations.
The statement in addition to usual columns shows the interest due together with details of calculation of
interest. The names of the two parties are entered at the top and the party to whom the account is rendered is
named first e.g. If A is rendering account to B, the statement is headed as “B in Account Current with A”. The
statement is in account form having the debit and credit side and is a replica of ledger account, with additional
columns facilitating interest calculations.
These statements are mostly used for rendering accounts between -
1. Supplier and Customer 2. Lender and Borrower
3. Broker and Client 4. Principal and Agent
5. Head Office and Branch 6. Co-Venturers

INTEREST CALCULATIONS:
1. FORWARD METHOD - Calculation of Interest: Under this method, each transaction is taken separately.
Interest is calculated at an agreed rate for each transaction by counting the number of days from the
date/due date of the transaction to the last date of rendering ‘Account Current’. Net Interest receivable or
payable is then debited or credited to the parties Account. This method is however tedious, since interest
has to be calculated for each transaction separately.

2. FORWARD METHOD - Use of Products: Under the previous method, interest columns are provided on
both sides of Current Account, and interest in respect of each item is found out. In this case ‘interest’
columns are replaced by ‘Product’ columns. Product is the amount multiplied by number of days for
which it is outstanding (also known as ‘Daily Products’)
Daily Products = Amount (Rs.) x Number of days
Monthly Products = Amount (Rs.) x Number of months
Interest is calculated on the balance of the products and interest is entered in the amount column of the
side which has the larger of the total products e.g. If the products are more to the debit side, the interest
is entered to the debit side.
Products Balance (Dr.) = Interest receivable
(Cr.) = Interest Payable
Interest Formula:
Interest = Daily Products x x
* For Leap year 366 days [2000, 2004, 2008 etc.]

Interest = Monthly Products x x

Note: Rate of interest denotes annual rate of interest
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 CA – FOUNDATION: PRINCIPLES & PRACTICE OF ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL
3. FORWARD METHOD - Products of Balance: This method also known as Periodic Balance Method, is
usually adopted by banks. In this case, the number of days are counted from the date/due of the
transaction to the due date of the following transaction. In the case of last transaction, the number of
days is counted to the close of the period. Product is the amount multiplied by number of days for which
it is outstanding (known as ‘Daily Products’). In this method, separate columns are provided for ‘Dr.
Products’ and Cr. Products.’ At the end, net products are found out and interest is calculated.

4. BACKWARD / EPOQUE METHOD: Under this method, Number of Days are calculated from opening date
of statement till due date of transaction. Debit side shows products payable and credit side shows
products receivable. This is opposite of forward method calculations. We have to also consider products
on closing Balance excluding Interest.

HINTS FOR CALCULATION OF NUMBER OF DAYS:

i. If no specific date is mentioned as the date on which payment is due, the date of the transaction itself is to
be presumed to be the due date.
ii. In calculating the number of days, either the date of the transaction or the due date is excluded.
iii. In case of opening balance, number of days are to be calculated including both opening and closing dates.
iv. There may be transactions, the due dates of which may fall after the period for which account is prepared.
Special adjustment will have to be made regarding interest or products on such transactions by writing in
‘Red-Ink’ (indicating Negative Interest) or the interest or products is written in ordinary ink on the
opposite side or the negative interest or product is written on the same side in ordinary ink on which the
transaction is entered.
v. For the purchase return transactions, take the same due date of related purchase transaction. Similarly for
the sale return transactions, take the same due date of related sale transaction.
vi. In case of Post Dated Cheques (PDC) take date of cheque as due Date and not date of receipt of cheque.
vii. In case of Dishonour of cheque due date for Dishonour of cheque is same as Due Date for Deposit of
cheque.
viii. 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. 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. In actual practice, however the product of such bill [value of bill X (due
date-closing date) is written in ordinary ink in the opposite side on which the bill is entered].

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 CA – FOUNDATION: PRINCIPLES & PRACTICE OF ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

2. PRACTICAL PROBLEMS

Q1. Method-1 and Method-2 REG. PAGE NO.

Prepare Account Current for Nath Brothers in respect of the following transactions with Shyam:
DATE TRANSACTION AMOUNT REMARKS
2015
Sep 16 Goods sold to Shyam Rs. 200 Due 1st Oct
Oct 1 Cash received from Shyam Rs. 90
Oct 21 Goods purchased from Shyam Rs. 500 Due 1st Dec
Nov 1 Paid to Shyam Rs. 330
Dec 1 Paid to Shyam Rs. 330
Dec 5 Goods purchased from Shyam Rs. 500 Due 1st Jan
Dec 10 Goods purchased from Shyam Rs. 200 Due 1st Jan
2016
Jan 1 Paid to Shyam Rs. 600
Jan 9 Goods sold to Shyam Rs. 20 Due 1st Feb
The account is to be prepared upto 1st February. Calculate interest @ 6% p.a. (1 Year = 365 Days).
Prepare under Method-1 and Method-2.

Q2. Method-2 and Method-4 REG. PAGE NO.

From the following particulars, make up an account current to be rendered by Mr. X to Mr. Y on 31 st
December, 2016 taking interest into account at the rate of 18% p.a.
DATE TRANSACTION AMOUNT
01.07.2016 Balance owing by Mr. Y Rs. 600
30.07.2016 Goods sold to Mr. Y (Credit period allowed 1 month) Rs. 300
01.08.2016 Good purchased from Mr. Y (Credit period received 1 month) Rs. 200
01.09.2016 Cash received from Mr. Y Rs. 100
01.09.2016 Mr. Y accepted Mr. X’s draft at 3 months date Rs. 400
You are required to prepare an account current according to an individual transaction under the Forward
and Backward methods.

Q3. Method-2 REG. PAGE NO.

Following transactions tool place between X and Y during the month of April 2016
DATE TRANSACTION AMOUNT
1st April Amount payable by X to Y Rs. 10,000
7th April Received acceptance from X to Y for 2 months Rs. 5,000
10th April Bills Receivable (accepted by Y) on 7.2.16 is honored this date
10th April X sold goods to Y (invoice dated 10.5.16) Rs. 15,000
12th April X received cheque from Y dated 15.5.16 Rs. 7,500

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DATE TRANSACTION AMOUNT
15th April Y sold goods to X (invoice dated 15.5.16) Rs. 6,000
20th April X returned goods sold by Y pm 15.4.16 Rs. 1,000
20th April Bill accepted by Y is dishonored on this due date Rs. 5,000
You are required to prepare an account current by products method to be rendered by X to Y as on 30 th
April 2016 taking interest into account @ 10% p.a. (assume 1 year = 365 days).

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“There is a thin line of difference in Competition and Rivalry.

Competition inculcates collectiveness whereas Rivalry brings Isolation”.
- Anshul A. Agrawal

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