Average Due Date

Paper 1: Accounting Chapter 7 Unit I

An Intro.

CA. S.K. Chhabra

 Learning Objectives

• Introduction
Average • Also Called Zero Interest Date
• Computing Average Due Date
Due Date • Important Points – For Noting
• Practical Exam Problems

Account • Interest Computation Methods

• Features of Account Current
• How to Prepare Account Current
Current • Practical Exam Problems

2 Accounts: Average Due Date and Account Current

 Average Due Date/ Zero Int. Date

What is Average Due Date???

• Equated date on which single payment may
be made in respect of several payments due
on different dates
• Simply speaking, average due date is the
arithmetic average of various payment dates

3 Accounts: Average Due Date and Account Current

 Average Due Date
Computation
An Intro.

4 Accounts: Average Due Date and Account Current

 Average Due Date Computation

Case I Case II

• Amount Lent • Amount Lent

in One in Multiple
Installment Installments
• Re-Payment • Repayment in
in Multiple One
Installments Installment

5 Accounts: Average Due Date and Account Current

 Case I: One Payment, Multiple
Equal Repayments

Calculation of Average Due Date when Amount is lent is one installment and
repayment is to be made in various equal installments

Sum of days/ months/ year

from the date of lending to the date
of repayment of Each installment
Average Due Date = Date of Loan +
No. of Installment

Note: The above formula is applicable only if repayment is made only in

equal installments

6 Accounts: Average Due Date and Account Current

 Case II: Multiple Payments,
Repayment in One Installment
Calculation of Average due date when amount is lent in
various installment and repayment is made in one
installment. Computation of Average Due Date in this
case is done in following steps:
1. Take any due date as the Base Date, preferably the
earliest due date should be taken as base date.
2. Calculate the number of days from the base date to
the due date of each transaction.if the due date of
transaction is after the Base date, its number of days
should be treated as plus, but if the due date of
transaction is previous to the base date, number of
days should be marked minus.

7 Accounts: Average Due Date and Account Current

 Case II - Continued
3. Multiply the number of days from base date by
its respective amount
4. Add up the amounts and products
5. Divide the total of the products by the total of the
amount and get the result approximately up to a
whole number.(e.g. 7.4 days are equal to 7days
and 7.52 days are equal to 8 days.)
6. Add the number of days calculated above to the
Base date and the result will be the average due
date

8 Accounts: Average Due Date and Account Current

 Case II: Formulae

Average Due Date = Base Date + Total Product

Total Amount

If there are transactions of purchase and sale or B/R and B/P between two
parties then always take same base date and apply the following formula

Average Due Date = Base Date + Difference in Total Product

Difference in Total Amount

9 Accounts: Average Due Date and Account Current

 Average Due Dates:
Important Points
To be Noted

10 Accounts: Average Due Date and Account Current

 Bills Receivables/ Payables
 A bills of exchange or promissory note matures
on the date on which it falls due. 3 days of grace
should always be added to the due date. Days of
grace should be added only in case of Bills
 When the date on which bills of exchange is at
maturity is a public holiday, the instrument shall
be deemed to be due on the preceding business
days

11 Accounts: Average Due Date and Account Current

 Bills Receivables/ Payables - 2
 The expression public holidays includes Sunday,
April 1, 30th Sept (bank holiday), 26th January,
15th August, 2nd October, 25 December and other
holidays as per Government Gazette.
 If the holiday happens to be emergency/
unforeseen holidays then the due date shall be
the next following day

12 Accounts: Average Due Date and Account Current

 Payment Dates
 If payment is made on the average due date, it
result in no loss of interest to either of the parties.
if payment is made after the due date then
interest is calculated from due date till date of
payment.
 If payment is made before the Average Due
Date THEN THERE IS SAVINGS OF INTEREST.

13 Accounts: Average Due Date and Account Current

 Different Loan & Repayment Dates

 If loan is given on one date and repayment of

Loan is given of different dates, then
 Interest is calculated from the date of loan till the
Average due date

14 Accounts: Average Due Date and Account Current

 Purchase/ Sale of Goods
Between Parties

 In business, if one party purchase/ sells goods to

other party, and date of payment are different,
 If all payment is made on average due date, then no
interest is payable
 In this case the base date of sale and purchase
transaction should be taken as same

15 Accounts: Average Due Date and Account Current

 Month/ Days Computation

 3.5 Months = 3 months and 15 days

16 Accounts: Average Due Date and Account Current

 Average Due Date Pro-Forma

Due Date Days from Amount Product

Base Date (Rs.)

17 Accounts: Average Due Date and Account Current

Average Due Date Illustrations

Case Type I: One Payment, Multiple

Equal Repayments
 Illustration 1
Comprehensive Problem
May 2008 4 Marks
Case Type I: One Payment, Multiple Equal Repayments

19 Accounts: Average Due Date and Account Current

 Problem Statement
 Mr A advanced Rs 30,000/- to Mr B on 1.4.2008.
 The amount is repayable in 6 equal monthly
installments commencing from 1.5.2008
 Compute the Average Due Date for the loan

20 Accounts: Average Due Date and Account Current

 Solution 1
 Average Due Date
=Date of loan + Sum of months from the date
of lending to date of repayment of
each installment
No. of installments

=1.4.2008 + 1+2+3+4+5+6
6
=1.4.2008+3.5 months
=16 July 2008

21 Accounts: Average Due Date and Account Current

 Illustration 2
Comprehensive Problem
Nov 2002 4 Marks
Case Type I: One Payment, Multiple Equal Repayments

22 Accounts: Average Due Date and Account Current

 Problem Statement
 Mr A lent 25,000 to Mr B on 1 Jan 2000.
 The amount is repayble in 5 half yearly
installments commencing from 1 Jan 2001
 Calculate the Average Due Date at 10% Interest
per annum

23 Accounts: Average Due Date and Account Current

 Solution 2
 Calculation of sum of period from date of each
transaction from the date of loan
 1st Payment is made after 12 months from loan
 2nd Payment is made after 18 months from loan
 3rd Payment is made after 24 months from loan
 4th Payment is made after 30 months from loan
 5th Payment is made after 36 months from loan
120

24 Accounts: Average Due Date and Account Current

 Solution 2:Continued
 Average Due Date=
 Date of loan + Sum of months from 1 Jan 2000 to
date of each transaction
No. of installments
=1 Jan 2000+120
5
=1 Jan 2000+24months
=1 Jan 2002

25 Accounts: Average Due Date and Account Current

 Solution 2:Continued
 Interest=25000*10/100*2
 =Rs 5000

26 Accounts: Average Due Date and Account Current

Average Due Date Illustrations

Case Type II: Multiple Payments, One

Repayment
 Illustration 3
Comprehensive Problem

Case Type II: Multiple Payments, One Repayment

28 Accounts: Average Due Date and Account Current

 Problem Statement
Calculate Average due date from the following
information
Date of the bill Term Amount
 16th August, 2010 3 months 3,000
 20th October, 2010 60 days 2.500
 14th December, 2010 2 months 2,000
 24th January, 2011 60 days 1,000
 06th March, 2011 2 months 1,500

29 Accounts: Average Due Date and Account Current

Solution 3
Bill Date Amount Term Due No. of days Product=
Date(Inclu from base Amount*
ding grace) date 19 nov Days

16 Aug 10 3000 3 Months 19 Nov 0 0

20 Oct 10 2500 60 Days 22 Dec 33 82500

14 Dec 10 2000 2 Months 17 Feb 90 180000

24 Jan 11 1000 60 Days 28 Mar 129 129000

6 Mar 11 1500 2 Months 9 May 172 258000

10000 649500
Accounts: Average Due Date and
30
Account Current
 Solution 3:Continued
Average due date = Base date + Total Sum of Product
Sum of Amount
= 649500/10000
 = 19 Nov. 10 + 65 Days (approx)
 = 23, Jan, 11

31 Accounts: Average Due Date and Account Current

 Illustration 4
Comprehensive Problem
May 1999 4 Marks
Case Type II: Multiple Payments, One Repayment

32 Accounts: Average Due Date and Account Current

 Problem Statement
Mr. Green and Mr. Red had the following mutual
dealing and desire to settle their account on the
average due date:
 Purchases by Green from Red: Rs.
 6th January, 2011 6,000
 2nd February, 2011 2,800
 31st March, 2011 2,000
 Sales by Green to Red:
 6th January, 2011 6,600
 9th March, 2011 2,400
 20th March, 2011 500
 You are asked to ascertain the average due date

33 Accounts: Average Due Date and Account Current

 Solution 4
Calculation of Average Due Date
Taking 6th January, 2011 as the base date
For Green’s payments

Due Date Amount No. of Day from Product

the Base Date
6 January 6000 0 0

2 Febuary 2800 27 75600

31 March 2000 84 168000

10800 243600

34 Accounts: Average Due Date and Account Current

 Solution 4:Continued
For Red’s payments

Due Date Amount No. of Day from Product

the Base Date
6 January 6600 0 0

9 March 2400 62 148800

20 March 500 73 36500

9500 185300

35 Accounts: Average Due Date and Account Current

 Solution 4:Continued
 Average Due Date =
 Base Date + Difference in Total Product
 Difference in Total Amount

 Base Date + 2,43,600 – 1,85,300

10,800 –9,500
=6 Jan + 58,300/1,300
=6 Jan + 45 days (approx.)
=20 Feb 2011

36 Accounts: Average Due Date and Account Current

Illustration 5
Comprehensive Problem
May 2000
Problem Statement
E owes to F the following amounts:
 (i)Rs. 5,000 due on 10th March, 2011
 (ii)Rs. 18,000 due on 2nd April, 2011
 (iii)Rs. 60,000 due on 30th April, 2011
 (iv) Rs. 2,000 due on 10th June, 2011
 He desires to make full payments on 30th
June 2011 with interests at 10% per annum
from the average due date. Find out the
average due date and interest.
Solution 5
Calculation of Average Due Date
Taking 10th March, 2011 as the base date

For E’s payments

Due Date Amount No. of Day from Product
the Base date

10 March 5000 0 0

2 April 18000 23 414000

30 April 60000 51 3060000

10 June 2000 92 184000

85000 3658000
Solution 5 Continued
 Average Due Date
=Base date + Sum of Product

Sum of amounts

=10 March 2011 + 3658000

85000
=10 March+43 days
=22 April 2011
Solution 5 Continued
 Computation of Interest:
 Interest to be calculated on Rs. 85,000 from
22nd April, 2011 to 30th June, 2011 at 10% p.a.
i.e. interest on Rs. 85,000 for 69 days at 10%.
 = Rs. 85,000x10/100 x 69/365
 = Rs. 1,607 (approx)
Illustration 6
Comprehensive Problem
November 2010
Problem Statement
From the following details find out the average
due date

Date of Bill Amount Term of bill

29 Jan 2009 5000 1 Month

20 March 2009 4000 2 Months

12 July 2009 7000 1 Month

10 August 2009 6000 2 Months

Solution 6
Date Term Due date Amount Days from Product
base date

29 Jan 1 Month 3 Mar 5000 0 0

20 Mar 2 Month 23 May 4000 81 324000

12 Jul 1 Month 14 Aug 7000 164 1148000

10 Aug 2 Month 13 Oct 6000 224 1344000

22000 2816000
Solution 6 Continued
 Average due date=Base date + Sum of
Product/Sum of amounts
 =3 March + 2816000/22000
 =3 March + 128 days
 =9 July
 Account Current
Paper 1: Accounting Chapter 7 Unit II

An Intro.

46 Accounts: Average Due Date and Account Current

 What is Account Current?

 An Account Current is a Running Statement of

Transactions between Parties
 For a Given Period of Time and
 Includes Interest Allowed or Charged on various
items

47 Accounts: Average Due Date and Account Current

 Form/ Presentation of
Account Current?

 Form of an Account
 Copy of ledger account of the other party in the
books of the party sending the statement
 An Account Current has Two Parties:
 One who renders (Sends) the Account and
 The other to whom the accounts is rendered.
 “A” in account current with “B”.
 It implies that A is the customer and the account is being
given to him by B in the books of B.

48 Accounts: Average Due Date and Account Current

 Account Current - Exchange
 Thus, When two parties have a number of
transactions between themselves, it is usual to
calculate the interest due.
 The parties exchange between themselves
statement showing the various transactions in the
period concerned and interest due.
 This statement is in the form of a ledger account
known as Account Current

49 Accounts: Average Due Date and Account Current

 Account Current –
Interest Computation Methods
An Intro.

50 Accounts: Average Due Date and Account Current

 Account Current –
Interest Computation Methods

Commonly Used
• Ordinary Method
• Product Method

Others
• Époque Method
• Daily Interest Method

51 Accounts: Average Due Date and Account Current

 Ordinary Method
 Each item is taken separately and the number of
days from the due date of transaction to the end
of the period is calculated and interest worked out
at the agreed rate of interest for the required
period.

 Note: In case of opening balance, the starting

day is included in the total number of days
 For e.g. if the opening date is 1-07-2012 then days
of July will be taken as 31.

52 Accounts: Average Due Date and Account Current

 Product Method
 Instead of calculating interest separately each
item is multiplied by the number of days to the
end of period and interest is calculated on the net
product for one day.
 In case of opening balance, the number of days,
includes the opening day but no interest is
computed on closing balance
Interest = Balance of Products x Rate of Interest
365 days x 100

53 Accounts: Average Due Date and Account Current

 Époque Method

 In this days are calculated from date of opening

date of the statement balance till due date of
each transaction.
 In this method there is no question of red in
interest.

54 Accounts: Average Due Date and Account Current

 Daily Interest Method

 In this method days are calculated from the due

date of one transaction to the due date of the next
transaction.
 This method is usually used in case of banks for
calculating interest on savings balance and
current account balance

55 Accounts: Average Due Date and Account Current

 What is 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 date is written in “Red-Ink” in the appropriate
side of the Account current.
 The 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 of the account)
is written in ordinary ink in the apposite side on
which date the bill is entered.

56 Accounts: Average Due Date and Account Current

 Features of Account Current
Important Points

57 Accounts: Average Due Date and Account Current

 Account Current Features
 Account Current is a statement rendered by one
party (say bank, dealer etc.) to the other party
 Say - Customer, Clients etc.
 It may be defined as an account of the
transactions between two parties during a
particular period in which interest is calculated at
an agreed rate on which debit and credit item and
the net balance of interest is included on the debit
or credit side of the account in the amount
column.

58 Accounts: Average Due Date and Account Current

 Account Current Features - 2

 In fact, it is a copy of ledger account of the

customer in the ledger of a dealer
 It A renders account to B the heading of the account
will be “B in Account Current with A”.
 Account Current is generally rendered by:
 A banker to his client
 A dealer to his customer
 An agent to his principal
 One Co-venture to another etc.

59 Accounts: Average Due Date and Account Current

 Account Current Pro-Forma

Books of A
B in Account Current with A
Date Particu Amount Day Product Date Particu Amount Days Product
lars (Rs.) s lars (Rs.)

60 Accounts: Average Due Date and Account Current

 How to Prepare Account
Current?
Two Steps Process

Calculation of
Calculation of
Days for
Interest
computing interest

61 Accounts: Average Due Date and Account Current

 Computation of Days for
Computing Interest
For counting the number of days, the date of the transaction (or due date) is ignored
and the date upto which the account is prepared is included. Therefore if the date of
the transaction is 20th January and the account current is rendered on 31st March,
the number of days will be counted from 21st January upto 31st March.

When transaction are relating to bills of exchange, etc., either due date (after adding
3 grace days) or the last day of period should be considered in the calculation of
number of days

Where the account current is started with the previous balance. Both opening date
and the last date of the period are included in the number of days.

When nothing has been mentioned, the date of transaction should be taken as the
due date.

62 Accounts: Average Due Date and Account Current

 Important Note 1
 In Account current, where the rate of interest differs in
respect of debits and credits, interest should be
computed for debits and credit separately interest of
the net balance of the product should be taken to the
ledger.
 The term of the bill after sight commences from the date
of acceptance of the bill, where as the term of a bill after
date commences from the date of drawing a bill.
 Account Current is usually sent by
 A banker to its customers
 A lender to its borrower
 Supplier to its customer

63 Accounts: Average Due Date and Account Current

 Important Note 2
 In the case of sale or purchase transaction, if any
credit period is allowed then only the due date
should be considered as on effective date of
transaction for e.g. If goods are sold (on 2 months
credit) on 1st June and the date of closing the
account is 30th September, the number of days
will be counted as under
 Due date is 01-08-2010
 August – 30 days
 September – 30 days
 Total Days = 60 days

64 Accounts: Average Due Date and Account Current

 Illustration 1
Comprehensive Problem
PCC May 2005 (8 Marks)

65 Accounts: Average Due Date and Account Current

 Problem Statement
 Make out an Account Current to be submitted by Raghuv to
Barun on 30th September, 2010, in respect of the following
transactions in the books of Raghav

July 1 Debit balance b/f Rs 1350

July 5 Sold goods to Barun Rs 900

July 15 Received cash from Barun Rs 1350

August 4 Barun purchased goods Rs 1920

August 15 Received cash from Barun Rs 900

66 Accounts: Average Due Date and Account Current

 Problem Statement Continued

Sept 1 Bought goods from Barun Rs 2100

Sept 1 Paid cash to Barun Rs 750

Sept 12 Sold goods to Barun Rs 960

Sept 15 Paid cash to Barun Rs 600

Interest to be taken into account at 5 per cent for annum,

calculated to nearest rupee

67 Accounts: Average Due Date and Account Current

 Solution 1
Books of Raghav
Barun in account current with Raghav
Interest at 5% p.a upto 30 September 2010

Date Particulars Amount Days Product

July 1 To balance Rs 1350 92 124200

July 5 To Sales Rs 900 87 78300
August 4 To Sales Rs 1920 57 109440
Sept 1 To Cash Rs 750 29 21750
Sept 12 To Sales Rs 960 18 17280
Sept 15 To Cash Rs 600 15 9000
Sept 30 To Interest Rs 21
68 Accounts: Average Due Date and Account Current
6501 359970
 Solution 1 Continued
Books of Raghav
Barun in account current with Raghav
Interest at 5% p.a upto 30 September 2010

Date Particulars Amount Days Product

July 15 By Cash Rs 1350 77 103950

Aug 15 By Cash Rs 900 46 41400
Sept 1 By Purchase Rs 2100 29 60900
Sept 30 By Balance c/d Rs 2151 153720

69 Accounts: Average Due Date and Account Current

6501 359970
 Illustration 2
Comprehensive Problem

70 Accounts: Average Due Date and Account Current

 Problem Statement
 Mr A owed 4000 on 1st January 04 to Mr X. The following
transactions took place between them. It is agreed
between the parties that interest@10% p.a is to be
calculated
 15 Jan 04 Mr X sold goods to Mr A Rs 2230
 29 Jan 04 Mr X bought goods from A Rs 1200
 10 Feb 04 Mr A paid cash to Mr X Rs 1000
 13 Mar 04 Mr A accepted a bill drawn by Mr
X for one month Rs 2000
They agreed to settle their accounts on a single payment
on 15 Mar 04. Prepare Mr A in Account current with Mr X.
Ignore days of grace

71 Accounts: Average Due Date and Account Current

 Solution 2
Mr A in account current with Mr X
Interest at 10% p.a upto 15 March 04
Date Particulars Rs Days Product Date Particulars Rs Days Product
2004 2004

Jan 1 To Balance b/d 4000 75 300000 Jan29 By Purchase 1200 46 55200

Jan15 Sales 2230 60 133800 Feb10 Cash 1000 34 34000

Red Ink Bills 2000

Mar13 58000 Mar13 Receivable(Due
Product
date 13 April)

Mar15 To Interest 110 Mar15 Balance of 402600

product

Balance c/d 2140

6340 491800 6340 491800

72 Accounts: Average Due Date and Account Current
 Solution 2:Working note
 Interest =402600*10*1/100*366
 Red Ink Product=2000*29

73 Accounts: Average Due Date and Account Current

 Illustration 3
Comprehensive Problem

74 Accounts: Average Due Date and Account Current

 Problem Statement
On 2nd January 2012. Vinod opened a current account with AB
Bank with Rs 30,000 and deposited the following amounts:
 15th January Rs. 12,000
 12th March Rs. 8,000
 10th May Rs. 16,000
 His withdrawals were as follows:
 15th February Rs. 26,000
 10th April Rs. 30,000
 15th June Rs. 14,000
Show Vinod’s A/c in the ledger of the AB Bank. Interest is to be
calculated at 5% on the debit and 2% on credit balance. The
account is to be prepared as on 30th June. 2012

75 Accounts: Average Due Date and Account Current

 Solution 3

Date Particulars Dr Cr Balance Days Dr Cr

Product Product
Jan 2 By cash A/c 30,000 30000 13 390000
Jan 15 By cash A/c 12,000 42000 31 1302000
Feb 15 To Self 26,000 16000 25 400000
Mar 12 By cash A/c 8,000 24000 29 696000
Apr 10 To Self 30,000 6000 30 180000
May10 By cash A/c 16,000 10000 36 360000
Jun15 To Self 14,000 4000 15 60000
Jun30 By Interest 140 3860
Jun30 By Balance c/d 3,860 76

Accounts: Average Due Date and

Account Current 70000 70000 240000 3148000
Illustration 4
Comprehensive Practical Problem
Problem Statement
 From the information given below, prepare an account current to be
rendered by Ram to Shyam upto 31st December, 2011. Interest is to be
calculated at 10% p.a.

 August 2, Goods sold to Shyam 900

 August 20, Sight draft(bank draft) received from Shyam 450
 October 10, Shyam purchased goods on one month’s credit 2,000
 October 25, Cash received from Shyam 1,500
 November 2, Goods returned by Shyam 300
 November 30, Cash sent to Shyam 1,000
 Solution 4
Shyam in account current with Ram
Interest to 31 December 2011 at 10% p.a

Date Particulars Days Intere Amt Date Particulars Days Inter Amount
2011 st 2011 est

2 Aug 151 37.25 900 2 Aug By Bank 133 16.38 450

To Sales

To Sales due 51 28 2000 25 Oct By Cash 67 27.5 1500

10 Oct date 10 Nov

To cash 2 Nov By Return 59

30 Nov 31 8.5 1000 Inward 4.87 300

To Interest By balance-
25 31 Dec 25
31 Dec (Contra) Interest(Contra)

Balance c/d 1675

73.75 3925 73.75 3925

 Thank You

80 Accounts: Average Due Date and Account Current